AUD VI Blake CPA Flashcards
Example of a subsequent event that would need disclosure footnote but no adjustment?
New convertible bonds issued to expand product line
When would a auditor not reference consistency in an audit report?
When there is a change an estimate such as a change in depreciation method - Accounted for prospectively
Change in Accounting principle (Changing inventory valuation required retro active application) Emphasis of matter is required to state inconsistency with prior years
Test Data approach - testing an accounting system
Fictitious entries that are processed through clients computer system under auditor’s control (Ex discovery of invalid ID number in payroll system)
Test data only has valid & invalid conditions that interest Auditor
Processed by client’s computer programs Under Auditors control
One transaction of each type need to be tested
Do not need to test ALL/every possible valid/invalid condition
Risk of assessing control risk to low
assessed lvl of CR < true operating effectiveness of control
Evidence that is least reliable?
Internally generated documents such as purchase orders,
What is a test of controls relating to testing cash balances?
Verify that cash disbursements have been properly APPROVED
What are substantive tests for verifying Cash Balances?
Cash confirmations, cash counts, cut off bank statements & performing bank reconciliations
Segregation of duties is divided into 3 separate functions ARC
Authorization
Record Keeping
Custody
What is the a good Internal control procedure designed to detect errors & irregularities relating to the Custody of inventory?
Independent comparison of finished goods records with counts of goods on hand
Cash Cycle Segregation of duties
Billing clerk should prepare Sales Invoice
A/R Clerk should prepare Aging Schedule
Shipping Clerk should prepare Bill of Lading
$ Receipts clerk SHOULD NOT be able to prepare a Credit Memo b/c cash can be misappropriated & theft can be concealed by issuing a credit memo
Incorrect Acceptance
Will incorrectly accept a balance that is deemed fairly stated when it is materially misstated
means that there is an error in the F/S
Incorrect Rejection
More work will be done so this will lead to a proper opinion even though this is not efficient
Is management considered as “Those charged with governance”
NO
Include BOD & Audit committee
Transaction cycle testing the sales of goods to customers would be tested with
Collections of receivables
Best evidence for Completeness of dividend INCOME:
Review dividends record books produced by outside service companies (Such as Moody’s) to determine if companies that the engaging client has stock in actually declared stock
