Audit Procedures

Question 1

What accounts do auditors focus on first when conducting substantive procedures?

Answer 1

Balance Sheet accounts and then they move to the associated Income Statement Items.

Question 2

Accounts Receivable

Answer 2

Acceptable detection risk high
Negative confirmation is used
Acceptable detection risk low
positive confirmation used

Income statement account - Revenue

Question 3

Accounts Payable

Answer 3

Review purchase orders/invoices
Confirm with vendors

Income Statement Account - Expense

Question 4

Inventory

Answer 4

Examine purchase agreements
- Look at board minutes - Used as collateral?

Income Statement - COGS

Beginning Balance should match last years ending balance.

Additions & Subtractions

• Did cash-in make to the cash receipts journal?
• Did cash-out get proper approval?

Ending Balance
- If Beg balance and additions & subtractions are okay, ending balance is okay.

Question 5

Compliance with Laws & Regulations

Answer 5

The auditor must perform procedures to identify noncompliance with laws and regulations that may have a material effect.
- Inspect correspondences with any regulatory authorities.

Question 6

Statement of Cash Flows

Answer 6

Foot all balances - check math

Trace Cash flow items to other statements

Check classifications - Operating, Investing, or Financing

Question 7

What must the Indirect method of the statement of cashflows disclose?

Answer 7

Indirect Method must disclose:

• Non-Cash Transactions
• Interest Paid
• Income taxes paid
• Cash and cash equivalents definition

Question 8

What must the direct method of the statement of cashflows disclose?

Answer 8

Direct Method must disclose:
Results as if yo had used indirect method
non-cash transactions
cash and cash equivalents definition