Audit 17 Flashcards
Due to several innovations the demand for personal watercraft has declined only slightly - this poses what kind of risk
A relevent assertion level risk
- Innovations may cause obsolescence in existing inventory - limited to inventory valuation
to help achieve a 25% increase in sales goal - the CEO changed sales staff compensation from salaried to commission
- this poses what kind of risk and why
- The relevant assertion level risk
- sales staff on commission might be motivated to commit fraud that they would not consider on salary
CEO plans to terminate relationships with several retail outlets and identify new retail outlets for distribution - what kind of risk and why
- Relevent assertion level risk
- new outlets introduce new potential for fraudulent entity to take advantage of the co. - This is limited to the revenue cycle and commission accounts
Strict new convenience on the company’s renewed LOC - what kind of risk
Financial statement level risk
- Managers with significant bonus opportunities based on profit might be motivated to commit fraud
a senior accountant from a prior staff audit firm has taken an accounting position - threat
No unforeseen threat -
employees were overheard recounting war stories in connection to a recent accounting software upgrade - what kind of risk
Financial statement level risk
New or revamped systems are relatively untested - Info system weaknesses could result in errors that pervade the financial statements
Investments are properly described and classified in the F/S
Verify that transfers from the trading to the available-for-sale investment portfolio have been properly recorded.
recorded investments represent investments actually owned on the B/S date
Obtain positive confirmations as of the balance sheet date of investments held by independent custodians.
Investments are properly valued at market on the balance sheet date
Determine that any impairments in the price of investments have been properly recorded.
A/R represent all amounts owed to the entity at the balance sheet date
perform sales cutoff test to obtain assurance that sales transactions and corresponding entries for inventory and COGS are recorded in the same and proper period
The entity has a legal right to all A/R at the balance sheet date
Review loan agreements for indications of whether accounts receivable have been factored or pledged.
A/R is stated at NRV
Review the aged trial balance for significant past due accounts.
A/R are properly described and presented in the F/S
Review the accounts receivable trial balance for amounts due from officers and employees.
The entity has a legal right to property an equipment acquired during the year
Examine deeds and title insurance certificates.
Property and equipment reported on the balance sheet actually exist
Physically examine all major property and equipment additions.
property and equipment are properly valued in the balance sheet
Review the provision for depreciation expense and determine that depreciable lives and methods used in the current year is consistent with those used in the prior year.
Question during a review and Audit :
Cash
Review: Are there any compensating balances or otters restrictions on availability of funds?
Audit: Request a list of outstanding checks to trace to a subsequent bank statement
Question during a review and audit :
A/R
Review: Has there been a proper cutoff of sales transactions?
Audit: Request that confirmations be prepared and signed
Question during a review and audit :
Inventory
Review: Were consignments in or out considered in taking a physical count?
Audit: an inquiry about the physical count for observation purposes
Question during a review and audit :
A/P
Review: Have all liabilities been appropriately accrued?
Audit: request for confirmation if decide to confirm A/P
Also reperformance and testing a sample of invoices for unrecorded liabilities
Question during a review and audit :
Debt
Review: Are there assets that have been pledged as collateral
Audit - request for prep and signing of a confirmation, and recalculation of interest expense
