Audit Flashcards
1
Q
List the Audit Acceptance procedures
A
- Identify users and nature
- Legal and financial stability
- Assess integrity of management
- Communicate with predecessor auditor
- Firm’s ability to audit client
- Agree the basis of performance
2
Q
List examples of testing A/R for Existence
A
- Send confirmations
- subsequent receipts
- sample AR from AR listing, and agree AR to subsequent bank statements
- vouch to invoice
3
Q
What is Vouching vs. Tracing?
A
Tracing - goes towards FS
- trace from document to FS
- test for completeness
Vouching - goes away from FS
- start with FS and towards supporting doc
- test for occurrence
4
Q
List examples of testing A/R for Cutoff
A
- review shipping documents for orders delivered just before year-end (or cut off period)
5
Q
List examples of testing A/R for Valuation
A
- aged listing of receivable, and follow up on past due accounts, such as by performing subsequent receipts testing for collectibility (as it could be impaired)
6
Q
List examples of testing Inventory for Existence
A
- inventory count (sheet to floor)
7
Q
List examples of testing Inventory for Valuation
A
- look at subsequent sales to determine NRV, and compare this to cost outlined in purchase invoice or internal costing system
- review fixed overhead allocation to determine if this is properly attributed to inventory
- potentially damaged/obsolete inventory: determine NRV - if the inventory can be used on other projects / sold
- verify whether inventory includes goods that have been returned (and cannot be re-sold again)
8
Q
List examples of testing Inventory for Presentation
A
- review inventory listing to ensure only finished tanks are included in the finished goods inventory (floor to sheet)
9
Q
List examples of testing Contingent Liability for Completeness
A
- request updated legal letters to ensure no unrecorded lawsuits & amounts used in assessment of likely loss are accurate, or see if amount is now confirmed or if outcome is determinable
10
Q
List examples of testing Contingent Liability for Valuation
A
- review insurance policy for coverage to determine amount of likely loss
- review costing schedule for inventory (ie. for defective inventory recalls / returns) to determine the amount of likely loss
- Examine actual # of defective products / changes in # or $ in lawsuits since year end, to ensure amount of loss recorded at YE was not understated
11
Q
List examples of testing PP&E for Valuation / Existence
A
- Review estimates of future cashflows (for recoverable amount), and deteremine if underlying assumptions are reasonable
- inquire or obtain amortization schedule & perform recalculation (consider useful life)
o appraisal - use of expert (revaluation method)
o agree to purchase invoice (cost method)
o inquire about assumptions in schedule & assess reasonability - review invoice to ensure purchase is capital in nature
12
Q
What is the recommend materiality range for:
- Revenue
- NIBT
- Assets
- Equity
- Expenses
A
- Revenue -> 1% to 3%
- NIBT -> 3% to 7%
- Assets -> 1% to 3%
- Equity -> 3% to 5%
- Expenses -> 1% to 3%
13
Q
What are the audit assertions for Balance Sheet items?
A
- Completeness (any unreported/missing items? Doc to FS - tracing)
- Accuracy, valuation & allocations (NRV, impairment)
- Existence (FS states this - do they really exist?)
- very similar to Occurrence, but this is B/S item*
- Rights & Obligations
- Classification
- Presentation
14
Q
What are the audit assertions for Income Statement items?
A
- Completeness (Doc to FS - tracing)
- Accuracy
- Occurrence (FS to doc - vouching)
- very similar to Existence, but this is I/S item*
- Classification
- Cut-off
- Presentation
