Audit 4 Flashcards
What does the assertion valuation and allocation mean?
It deals with whether the assets, liabilities, and equity interests have been included in the financial statements at appropriate amounts.
What is the most reliable evidence?
Auditors direct personal knowledge, external evidence, internal evidence, and oral eveidence
When should you use analytical procedures as substantive tests?
This decision is based off of the availability, reliability, and precision of the data used to develop expectations.
What direction of audit testing should be performed for testing whether transactions have been recorded?
They should be testing if they have been recorded and traced from the source documents to the accounting records.
what is the objective of test of details of transactions performed as substantive tests?
to detect material misstatements in the financial statement.
What is the standard auditing nemonic?
FIVE CARROT CARS
- footing
- inquiry
- vouching
- examination
- confirmation
- analytical procedures
- reperformance
- reconciliation
- observation
- tracing
- cutoff review
- auditing related accounts simultaneously
- representation letter
- subsequent events
what would be characteristics indicative of kiting?
it occurs when a check is drawn on one bank and is deposited in another bank and no record is made of the disbursement balance of the first bank.
may result in a high level of deposits couple with low average balance.
What is included in the revenue cycle?
sales, receivables, and cash receipts. This is part of the transaction cycle approach involving the sale of goods.
What is the concern of existence and occurrence assertion?
the auditor is concerned that fictitious sales or overstated receivables may have been recorded.
How would you establish the existence and ownership of long term investment?
The auditor would confirm the number of shares held by an independent custodian to establish the existence and ownership.
How does GAAP require transactions and events to be reported?
in accordance with their economic substance, even if it differs from their form. (develop an understanding of the economic substance of each derivative).
What would be appropriate testing for the completeness assertion with inventory?
Performing cutoff procedures provide assurance that goods in transit are appropriately included or excluded from inventory.
What is an accounting estimate?
an accounting estimate pertains to determining the approximation of past events that cannot be determined on a timely, cost-effective basis.
what is not an audit procedure with a contingent liability?
the auditor does not have to confirm directly with the clients lawyer that all claims have been recorded. Management has the responsibility to include all claims in the financial statements.
to provide assurance that management has disclosed all accounting estimates that could be material to the financial statements?
Review the lawyer’s letter for information about litigation.
