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Auditing > Audit 4: Audit Evidence > Flashcards

Audit 4: Audit Evidence Flashcards

1
Q

Appropriate Audit Evidence must be what…

A

Reliable and Relevant

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2
Q

Hierarchy of Audit Evidence

A

Auditors direct knowledge

External Evidence

Internal Evidence

Oral Evidence

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3
Q

Relevance of Evidence

example AR

A

AR confirmations are relevant to the existence of the receivables

but not valuation because it does not show if customer is going to pay

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4
Q

Substantive Procedures are…

A

designed to detect material misstatements at the assertion level

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5
Q

Substantive Procedures consist of..

A

Test of details

Substantive analytical procedures

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6
Q

When must analytical procedures be used?

A

Planning and Final Review

Can be used in Substantive procedures portion but not required

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7
Q

Some analytical procedures are..

A

Comparisons of Financial data

Ratio analysis

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8
Q

Test of Details includes what procedures…

A

Directional Testing

External Confirmation

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9
Q

Directional Testing is

A

Financial House going up or down

Vouching or Tracing

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10
Q

When vouching what are you testing for…

Tracing…

A

Vouching… Existence=Fin stmts down

Tracing… Confirmation=Source documents up

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11
Q

Financial House for Vouching and Tracing

Top to Bottom

A

Fin Stmts

Trial Balance

General Ledger

Subsidiary Ledger

Books of Original Entry

Source Documents

Execution of Event

Transaction Approved

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12
Q

What is negative confirmation of external confirmation?

A

3rd party responds to auditor only if they disagree with information in request

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13
Q

Standard Audit Procedures

A

FIVE CARROT CARS

Footing/Cross

Inquiry

Vouching

Examination

Confirmation

Analytical Procedures

Re-performance

Reconciliation

Observation

Tracing

Cutoff Review

Auditing Simultaneously

Rep Letter

Subsequent Events

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14
Q

Relevant Assertions from Chapter are what mnemomic

A

COVER-U

Completeness

CutOFF

Valuation/Accuracy

Existence

Rights

Understandability

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15
Q

What are the most important assertions of account balances?

A

CVER

Completeness

Valuation

Existence

Rights

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16
Q

What are the most important assertions of Transactions and Events?

A

COVEU

Completeness

CutOFF

Valuation/Accuracy

Existence

Understandability

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17
Q

What are the most important assertions of Presentation and Disclosure?

A

CVRU

Completeness

Valuation/Accuracy

Rights

Understandability

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18
Q 
What assertion do 
Tracing
Analytical Review
Observation 
procedures relate to?
A

Completness

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19
Q

What assertion does Cutoff Procedures relate to ?

A

CutOff

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20
Q 
What assertion do 
Inspection
Footing
Independent Calculation
procedures relate to?
A

Valuation/Accuracy

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21
Q 
What assertion do
Confirmation
Observation
Vouching
procedures relate to?
A

Existence and Occurrence

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22
Q

What assertion do Inspection procedures relate to?

A

Existence and Occurrence

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23
Q 
What assertion do
Inspection
Review
Inquiry of Mgmt 
procedures relate to?
A

Understandibility and Classification

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24
Q

Why do auditors audit by transaction cycle?

A

They can gather information from related accounts at the same time.

So it is more efficient

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25
Q

What is the most relevant assertion for the revenue cycle?

A

Existence- because likelihood revenue will be overstated is high

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26
Q

What is the most relevant assertion for the expense cycle?

A

Completeness- because not likely to make it to financial stmts

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27
Q

What are two types of fraud that can occur in the Cash Cycle?

A

Lapping-using today money to cover yesterdays theft

Kiting-using checks between multiple accounts

28
Q

What does inventory observation include

A

can include test counts of inventory

But NOT a full count of inventory

29
Q

What procedure is common to use on assets and revenue?

A

Vouch- Go down the financial house to check for existence

30
Q

What procedure is common to use on liabilities and expenses?

A

Trace- Go up the financial house to make sure they make it to fin stmts

31
Q

Engagement Quality review is..

A

PCAOB standards for another partner to look at the audit before it is released

32
Q

Correcting Journal Entries

A

Need to know sometimes asked on test

33
Q

Analytical procedures are most appropriate on what type of transactions?

A

on Income Stmt Transactions because they take place over time

Not Balance sheet transactions

34
Q

What is not considered an analytical procedure?

A

Statistical Sampling not involving comparison

35
Q

Who should mail a check?

Why?

A

Whomever signs the check should mail

prevents defalcations

36
Q

How to handle incoming cash and checks?

A

1st person receives and creates remittance listing

NOT Allowed near journals

Another person does this

37
Q

Misstatements of cash occur when..

A

Disbursement date per books and
receipt date per books
are in different periods

38
Q

To provide assurance that each voucher is only paid once what would auditor look for?

A

Stamped paid by check signer

39
Q

Where should undistributed payroll checks go after being returned?

A

Should not go to payroll because they are the record keepers.

Needs to go to independent party

40
Q

What sort of opinion to issue if clients attorney cannot form a conclusion about pending litigation that could be material?

A

Unmodified and properly disclose it

41
Q

What is important for an auditor to do with related party transactions?
Why?

Verify valuation?
and/or
Evaluating the disclosures?

A

You want to evaluate that they are disclosed

Dont care about valuation since they are related party

42
Q

Who should request inquiry of clients lawyer?

A

Client Mgmt due to client attorney privilege

43
Q

Acid Test Ratio Equation

A

Cash+Mkt Sercurities+AR

divided by

Current Liabilities

44
Q

Cash Ratio equation

A

Cash + Mkt Securities

divided by

Current Liabilities

45
Q

AR Turnover equation

Shows what?

A

Net Credit Sales

divided by

Average Net Receivables

Shows number of times to collect in year. higher the better

46
Q

Inventory Turnover equation

Shows what?

A

COGS

divided by

Avg Inventory

shows number of times inventory sold in a time period

47
Q

Inventory Turnover in Days equation

A

365

divided by

Inventory Turnover

Number of days to turnover

48
Q

Operating cycle equation

A

is AR Turnover in days
plus
Inventory turnover in days

Shows # of days between acquisition of inventory and getting your money

49
Q

Remittance Advice is…

A

payment for invoice

50
Q

When there are many small balances that need to be confirmed with only a few likely to dispute what should auditor do?

A

Ask for Negative Response only

51
Q

What is best way for auditor to value investment by the equity method?

A

Examine the audited financial stmts of the investee company

52
Q

If original insurance policy document is not available for plant equipment what could this mean?

A

There is lien on plant equipment and lien holder has issurance

53
Q

Bank confirmations check for what?

A

Bank Balances

Contingent liabilities

Pledged Collateral

54
Q

You could tell of possible kiting occurs from what bank and book disbursement and receipt dates?

A

If

Disbursement Date Per Bank

is in period after

Receipt Date Per Bank

55
Q

How can you tell from bank and books disbursement and receipt dates IN TRANSIT items?

A

Disbursement Date per Books

is in period prior

Receipt Date per Bank

56
Q

What should Purchasing department send to accounting department when nonconforming goods returned?

A

Debit Memo

57
Q

Revenue cycle financial house top to bottom

A 
FS
TB
GL
Sales Journal
SALES INVOICE
BILL OF LEADING
SALES ORDER
Execution report 
Authorization of the event
58
Q

Expenditure cycle financial house top to bottom

A 
FS
TB
GL
SL
General Journal
PURCHASE JOURNAL 
CHECK
VOUCHER
VENDOR INVOICE
RECEIVING REPORT
PURCHASE ORDER
PURCHASE REQUISITION
Execution event
Authorization of the event
59
Q

What does revenue cycle include?

A

sales revenue
accounts receivable
cash receipt

60
Q

What does expenditure cycle include?

A

purchases
accounts payable
cash disbursement

61
Q

What are the keywords for completeness?

A 
CUT UP
Completeness
Unrecorded 
Trace
Understatement
Pre-numbered documents
62
Q

What are the keywords for existence and occurrence?

A 
VOVOC
Vouch
Observation
Valid
Overstatements
Confirmations
63
Q

What are the keywords for valuation, allocation and accuracy?

A 
PPRR.... FCC
Price testing
Properly valued
Recalculation
Recomputing
Fair Value
Contra Accounts
Credits
64
Q

What are the keywords for Rights and obligations?

A 
T-CREDD
Title
Canceled checks
Receipts
External confirmations
Debt agreements
Deed
65
Q

What are the keywords for Classification and understandability

A

Properly Recorded

Properly Classified

Auditing (9 decks)

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