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Audit Ch.18 Audit of of acquisition and payment cycle: Audit objectives > Audit Objectives > Flashcards

Audit Objectives Flashcards

1
Q

What is needed for Audit Test?

A
  • to collect sufficient & appropriate audit evidence, auditros need to understand clients I.C structure
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2
Q

What tests must be performed to help auditor understand I.C?

A
  • Understand Internal Controls System (UICS)
  • Test of Controls (TOC) - auditros expect clients control risk to be low
  • Substantive Test of Transaction (STOT) - done using samples drawn to test I.C (2 transaction classes credit purchase & cash disbursement)
  • Substantical Analytial Procedures (SAP) Optional - used when refusing amount of evidence. (exam). E.I larger account balance compared to last year. Allowance for uncollectable account,
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3
Q

How do Auditors recognize clientss businesses processes and operations (acquisition and payment cycle)?

A
  • Reviewing clients AIS going over flowcharts etc.
  • Walkthrough (
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4
Q

What is a walkthrough?

A
  • Reviews Beg to End transaction by selecting a source document (P.O, Invoice, Recei
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5
Q

As we perform walkthrough we?

A
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6
Q

whait is done in all these steps?

A
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7
Q

What is the objective of Walkthroughs?

A
  • Identification of Risk for Material Misstatement
  • As we perform Walkthroughs we
    • Make Inquiries
    • Inspect documents
    • Make observations
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8
Q

What are 4 major business processes in the acquisition and payment cycle ?

A
  1. Processing Purchase Orders (P.O)
  2. Receiving goods & Services
    • inspect goods & send to accounting
  3. Recognize liabilites
  4. Processing and recording cash disbursements
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9
Q

Business Process Documents, and records

What Buss Proc documents are used here?

A
  • Purchase requistion
    • filling paper work to ask for purchas
    • Purchase Order
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10
Q

Business Processes, Documents, and records

What is used for Receiving goods and Services?

A
  • Shipping document from common carrier
    • info of quantity, goods shipped
  • Receiving report (Internal)
    • inspects & records what materials & inventory were received by company
    • Then receiving report is sent Accounting departmetn to notify what items have been received (Cezar to black girl)
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11
Q

Business processes, documents, and records

*What is in Recognizing liabilities?

A
  • Voucher package
    • Purchase Order
    • Receiving report
    • Vendor Invoice
  • Vendor Statement (monthly)
  • Acquisition file
  • Acquisition journal
  • A/P master file
  • Debit memos
    • increase what customer owes (more $ owed)
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12
Q

Business processes, documents, and records

What is done in Processing and recording cash disbursement?

A
  • Check or electronic payment
  • Turnaround doument
  • *Cash disbursement transaction file
    • record of company’s internal accounts that list all financial payments made in cash or cash equivalents
    • Is done BEFORE payments are posted to the General Ledger
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13
Q

What is on the Debit & Right hand side of A/P T-Account?

A
  • Debit (Left) decreases
    • paying our bills
  • Credit (Right) Increases
    • buying assets
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14
Q

Test of I.C

What is the baseline focus on S_egregation of duties_ in accounting?

A

A - R - C

  • *Authorization
    • of purchases & cash disbursements
  • *Recording
    • Timely recording of purchases & payments
  • *Custody
    • Seperation of physial control of assets (receiving) from authorization (purchases) and recording functions (accounting)
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15
Q

Audit *Objectives*

What are the audit objectives in Acquisition and Payment Cycle?

A

O - C - A - P/S - C - T

  • **Occurrrence
  • **Completeness
  • **Accuracy
  • Posting & Summarization
  • **Classification
  • Timing
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16
Q

What are the two Audit objectives (2/6) (acquisition)

A
  • **Occurence
    • recorded acquisition for goods & services received
    • Acquisitions occurred are for bussines purposes (not personal exp)
  • **Completeness
    • Acquisition made are recorded
    • Consequences of not recording includer
      • Understatement A/P
      • Overstatement I/S
    • How to Prevent & Test
      • Strong I.C & STOT
17
Q

What are third & fourth Audit objectives (3&4/6) (acquisition)

A
  • **Accuracy
    • Acquisitions are recorded accurately
    • How to Prevent & Test
      • Strong test over recording I.C & STOT
  • Posting & Summarization
    • Acquistion transactions are correctly included in A/P & Inventory master file and are correctly summarized
18
Q

What are (5) & (6) Audit objectives (5&6/6) (acquisition)

A
  • **Classification
    • Acquisition are correctly classified in the company’s record in proper year
    • Two Major areas:
      • Fixed Assets
      • Expense Accounts (Repair&main)
  • Timing
    • Acquisition transactions are recorded in the correct dates
19
Q

What is SAP ?

A
  • Comparing recorded amounts to expectations developed by Auditors
  • Test Ending Balance
20
Q

Theres a total of 4 SAP & Possible Misstatements, what are they?

A
21
Q

AR = IR x CR x PDR

  • Know that we have done:
  • Phase I (Planning)
    • Identify significant risk & Assess risk of MM for A/P
    • Set performance materiality for A/P
    • Asses Control Risk for acquisition & payment cycle
  • Phase II (Fieldwork: TOC, STOT)
    • Design & perform TOC & STOT for acquisition & payment cycle

What is done in Phase III?

A
  • Phase III (Fieldwork)
    • Design TDB of to satisfy balance-related audit objectives
  • TDB
    • Focuses on Ending balance of Genera ledger balance for B/S & I/S
    • Establishes $Monetary correctness of accounts
22
Q

What type of Balance-related Objectives and TDB for A/P are done ?

(To find out possible Understatement of A/P)

A
  • Cutoff Procedures
    • ensure no unrecorded liabilities
    • Examine contract terms, Verify shipping time (end year),
    • FOB & SOB - Destination
23
Q

Why & how do Verify subsquent payments ?

A
  • Why? (Understatement of liabilities)
    • Purpose of this Audit Procedure is to find out whether there is any unrecorded liabilities at year end.
    • Allowable Time frame is 2 weeks after year end for search (audit period)
  • How?
    • Send (+) & (-) Conformations to vendors to verify A/P balances at yer end
24
Q

What is the Overall view of Subsuquent Payments?

A

Audit Ch.18 Audit of of acquisition and payment cycle: Audit objectives (2 decks)

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