Audit Objectives Flashcards
What is needed for Audit Test?
- to collect sufficient & appropriate audit evidence, auditros need to understand clients I.C structure
What tests must be performed to help auditor understand I.C?
- 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,
How do Auditors recognize clientss businesses processes and operations (acquisition and payment cycle)?
- Reviewing clients AIS going over flowcharts etc.
- Walkthrough (
What is a walkthrough?
- Reviews Beg to End transaction by selecting a source document (P.O, Invoice, Recei
As we perform walkthrough we?
whait is done in all these steps?
What is the objective of Walkthroughs?
- Identification of Risk for Material Misstatement
- As we perform Walkthroughs we
- Make Inquiries
- Inspect documents
- Make observations
What are 4 major business processes in the acquisition and payment cycle ?
- Processing Purchase Orders (P.O)
- Receiving goods & Services
- inspect goods & send to accounting
- Recognize liabilites
- Processing and recording cash disbursements
Business Process Documents, and records
What Buss Proc documents are used here?
- Purchase requistion
- filling paper work to ask for purchas
- Purchase Order
Business Processes, Documents, and records
What is used for Receiving goods and Services?
- 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)
Business processes, documents, and records
*What is in Recognizing liabilities?
- 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)
Business processes, documents, and records
What is done in Processing and recording cash disbursement?
- 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
What is on the Debit & Right hand side of A/P T-Account?
- Debit (Left) decreases
- paying our bills
- Credit (Right) Increases
- buying assets
Test of I.C
What is the baseline focus on S_egregation of duties_ in accounting?
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)
Audit *Objectives*
What are the audit objectives in Acquisition and Payment Cycle?
O - C - A - P/S - C - T
- **Occurrrence
- **Completeness
- **Accuracy
- Posting & Summarization
- **Classification
- Timing
What are the two Audit objectives (2/6) (acquisition)
- **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
What are third & fourth Audit objectives (3&4/6) (acquisition)
- **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
What are (5) & (6) Audit objectives (5&6/6) (acquisition)
- **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
What is SAP ?
- Comparing recorded amounts to expectations developed by Auditors
- Test Ending Balance
Theres a total of 4 SAP & Possible Misstatements, what are they?
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?
- 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
What type of Balance-related Objectives and TDB for A/P are done ?
(To find out possible Understatement of A/P)
- Cutoff Procedures
- ensure no unrecorded liabilities
- Examine contract terms, Verify shipping time (end year),
- FOB & SOB - Destination
Why & how do Verify subsquent payments ?
- 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
What is the Overall view of Subsuquent Payments?
