Audit Evidence Flashcards
What are management’s assertions regarding the financial statements being audited?
Understandability and Classification Presentation and Disclosure Existence and Occurrence Rights and Obligations Completeness and Cutoff Valuation, Allocation, and Accuracy
What are the main audit procedures/substantive tests?
Inquiry Confirmation Observation Recalculation Reperformance Inspection of assets Inspection of records/documents Analytical Procedures
I-CORRIA
What management assertion does vouching test for? What direction does the testing flow?
Vouching tests existence/occurrence by beginning with book amounts and locating the corresponding source documentation to compare against.
What does tracing test for? What direction does the testing flow?
Tracing tests completeness by beginning with the source document and “tracing” it to the book amounts.
Distinguish between audit approaches for test of balances and test of transactions.
Test of balances is audit testing performed on accounts having a large quantity of transactions with relatively small dollar amounts (cash, A/R, A/P).
Test of transactions is performed on accounts having few, but very large dollar transactions (Fixed Assets, bonds/financing costs, stockholders equity).
What is lapping?
Attempting to conceal the theft of receivables by posting subsequent customer payments to that subsidiary account (and so on). The thought is that a recently received payment would remain outstanding on an AR aging report and thus make it difficult to notice the theft from a prior period.
A significant risk with businesses with similar bill amounts (cable packages, subscriptions)
What is kiting?
Deliberately overstating the total cash in the bank by recording a receipt in one bank account without recording the equivalent disbursement from the other account in the same period (month or year)
Distinguish between a Type I subsequent event and Type II subsequent event.
Both event types occur between the balance sheet date and the audit report release date.
Type I events provide new information regarding an existing condition as of the balance sheet date and therefore require an adjustment of amounts or disclosures to the F/S. (outcome of contingency loss)
Type II events that do not affect an existing condition as of the balance sheet date, but require the auditor to consider the significance of the event and whether omitting disclosure in the F/S would be misleading. (Fire burning down a production plant)
