Audit Procedures

Question 1

P&L Assertions

Answer 1

Occurrence - overstatement - GL to documents - vouching
Completeness - understatement - documents to GL - tracing
Accuracy - Over or Under
Cutoff - Over or Under
Classification overstatement
Presentation

Question 2

Balance Sheet Assertions

Answer 2

Existence - overstatement - GL to documents (AR confirmation)
Rights and Obligations - overstatement
Completeness - understatement - documents to GL
Accuracy, Valuation and allocation - overstatement - floor to sheet
Classification - overstatement
Presentation

Question 3

Presentation and Disclosure Assertions

Answer 3

Occurrence
Rights and Obligations
Completeness
Classification
Accuracy and Valuation

Question 4

Substantive procedures for Existence

Answer 4

Bank confirmation (third party)
Accounts Receivable confirmation (third party)
Inquire to mgmt regarding the collectability of customer accounts
Observe a physical inventory count or capital assets
Review documentation outlining ownership of intangible assets

Question 5

Substantive procedures for Classification

Answer 5

Inspect purchase orders for fixed assets and compare to account classification

Question 6

Substantive procedures for Completeness

Answer 6

Inspect bank statements for payments to suppliers
Match payments received to invoices
Inquire to mgmt on financial obligations

Question 7

Substantive procedures for Cutoff

Answer 7

Inspect shipping log at period end against when transactions were record

Question 8

Substantive procedures for Occurrence

Answer 8

Trace and invoice to customer order and shipping documentation
Accounts Receivable confirmation (third party)

Question 9

Substantive procedures for Rights and Obligations

Answer 9

Inquire to third parties for contracts to confirm rights of assets
Accounts Receivable confirmation (third party) to confirm that the rights have transferred
Review documentation to confirm rights of assets

Question 10

4 types of test of controls

Answer 10

Inquiry
Observation
Inspection
Re-performance

Question 11

What assertion does AR confirmations test

Answer 11

Existence

Question 12

Fraud Triangle

Answer 12

Attitude + rationalization + opportunity = fraud

Question 13

Objectives to using an internal audit team

Answer 13

• To reduce the amount of work required by the engagement team
• Reducing the time required to perform the engagement and the fees charged to the client

Question 14

To use an internal audit team the following must be evaluated

Answer 14

• The extent to which the internal audit function’s organizational status and relevant policies and procedures support the objectivity of the internal auditors.
• The level of competence of the internal audit function
• Whether the internal audit function applies a systematic and disciplined approach, including quality control.

Question 15

To determine if it makes sense to use an internal audit team we must perform procedures to evaluate whether:

Answer 15

(a) The work of the function had been properly planned, performed, supervised, reviewed and documented;
(b) Sufficient appropriate evidence had been obtained to enable the function to draw reasonable conclusions; and
c) Conclusions reached are appropriate in the circumstances and the reports prepared by the function are consistent with the results of the work performed.

Question 16

If considering using internal audit team for direct assistance, what to consider if appropriate

Answer 16

Are there significant threats to the objectivity of the internal auditor?

Such as participating in audit of a bonus calculation when they receive the bonus.