Audit Cycles Flashcards
What duties should be segregated for the inventory cycle?
- Purchasing
- Receiving
- Warehouse
- Shipping
What are the required dual purpose tests for inventory balance?
observation of beg and end physical inventory counts. including:
Evaluate mgmt instructions and procedures
Observe performance of mgmt count procedures
Inspect inventory to ascertain existence and condition
Perform test counts
What assertions are associated with inventory balances?
- Completeness
- valuation, allocation, accuracy
- existence and occurrence
- rights and obligations
How do you test completeness for inventory account bal?
Trace test counts to report. Trace prenumbered tags to physical inventory report sheets.
How do you test valuation, allocation and accuracy for inventory acct bal?
Test accuracy of inventory report and reconcile to GL. Inquire about obsolete or damaged goods. Scan records for slow moving inventory. Examine vendor invoices, review DL rates, recompute overhead rates and review variance analyses.
How do you test existence and occurrence for inventory acct bal?
Observation of inventory count. Verify physical inventory report to items and test count. Vouch inventory report sheet to prenumbered inventory tags.
How do you test rights and obligations for inventory acct balances?
Review shipping
terms and consigned
inventory
How do you test completeness for inventory presentation and disclosure?
ensure required disclosures are present
How do you test valuation, allocation, and accuracy for inventory presentation and disclosure?
read footnotes and make sure they are correct
how do you test rights and obligations for presentation and disclosure for inventory
Inquire of mngmt Read loans minutes. Inquire about warranty obligations.
How do you test understandability and classification for presentation and disclosure for inventory
Read required disclosures. Review inventory records for proper classification of RM, WIP, Finished Goods.
What duties should be segregated for investment cycle?
o Authorization of purchase or sale of investments = BoD
o Custody of investments
Independent 3rd party
Minimum = joint by two company officials, safe deposit box
If held by company, periodic count and reconciliation w/ investment subsidiary ledger
o Record keeping
What are the substantive test of details for investment cycle?
focused on ending balance
How are analytical procedures used for investment income?
reasonableness of gains and losses
How do you test completeness for investment account bal?
Search for unrecorded purchases by examine after YE purchases. Confirm securities held by custodian. Request information from counter party. Analytical procedures for expected interest earned to actual interest earned
How do you test valuation, allocation, and accuracy for investment acct bal?
Foot investments by category and agree to GL. Review sched of investment activity. Corroborated YE fair values from published sources or independent broker-dealer. Recalc YE investments at amortized cost. Look at significant influence. Impairment. Assess assumptions and market variables.
How do you test existence and occurrence for investment acct bal?
Confirmation of securities. Examination of securities on hand. Analytical procedures.
How do you test rights and obligation for investment account balances?
Confirmation of securities. Examination of securities on hand. Examine broker advices and verify ownership.
How do you test completeness for investment transactions?
Analytical procedures on reasonableness of dividend and interest income.
How do you test cutoff for investment transactions
Review that purchases, sales, and investment income has been recorded in correct period
How do you test valuation, allocation, and accuracy for investment transactions?
independent calculations on expected gains, losses and amortization. Recalculate dividend and interest income. Compare to Moody's.
How do you test existence and occurrence for investment transactions?
Analytical procedures on reasonableness of dividend and interest income.
How do you test understandability and classification for investment transactions?
Review transactions for proper classification. Unrealized G/L on available for sale = OCI. Unrealized G/L on trading = income
How do you test completeness for presentation and disclosure for investments?
determine whether all req. marketable security and derivative disclosures have been made
How do you test valuation, allocation, and accuracy for presentation and disclosure for investments?
read footnotes and determine if its accurate
How do you test rights obligations, and occurrence for presentation and disclosure for investments
Inquire of mngmt. Read loans & minutes to determine if pledged as collateral
How do you test understandability and classification for investments?
read disclosures
What are the duties that should be segregated for the revenue cycle?
- Authorization
- Record Keeping
- Custody
What is the risk of overstatement for the revenue cycle?
- recording fictitious sales
- hold open the sales journal into next year
How do you audit completeness for AR?
obtain AR TB and trace total to GL control acct
how do you test valuation, allocation and accuracy for AR?
confirm adequacy of AFDA
How do you test existence and occurrence for AR?
confirm sample of AR
How do you test rights and obligations for AR?
bank confirmations and debt agreements for liens
How do you audit sales transactions for completeness?
trace sample of shipping documents to the corresponding sales invoices and to the sales journal
How do you audit cutoff sales transactions
look at invoices before and after YE
How do you audit sales transactions for valuation, allocation, and accuracy?
compare prices from invoices to authorized price list
How do you audit sales transactions for existence and occurrence?
vouch sales transactions from the sales journal to the sales invoice back to the customer order and shipping documents
How do you audit sales transactions for understandability and classification?
proper classification into the appropriate revenue accounts
What duties should be segregates for expenditures?
- purchasing
- receiving
- vouchers payable
- treasury
How do you audit AP for completeness
search unrecorded liabilities
How do you audit AP for valuation, allocation, and accuracy?
foot AP listing
How do you audit AP for existence and occurrence?
vouch amounts from the accounts payable listing to voucher packages
How do you audit AP for rights and obligations?
review a sample of voucher packages to verify that AP are owed by the entity
How do you audit purchase transactions for completeness?
trace a sample of vouchers to the purchase journal
how do you audit purchase transactions for cutoff
compare dates on vouchers with the dates the transactions were recorded in the purchase journal
How do you audit purchase transactions for valuation, allocation and accuracy
recompute invoice for mathematical accuracy
How do you audit purchase transactions for existence and occurrence
sample of vouchers for the authorizations and the presence of the receiving report
How do you audit the purchase transactions for understandability and classification?
verify the account classification of a sample of purchases
