Audit Procedures by Transaction Cycle Flashcards
What is the biggest audit concern related to the Revenue Cycle? How is it achieved?
The biggest audit concern related to the Revenue Cycle is the overstatement of Receivables.
This is achieved by overstating balances, reporting fictitious balances, or understating the allowance for uncollectible accounts.
What would an auditor most likely trace when receiving a client’s bank cutoff statement?
Prior-year checks listed in the cutoff statement to the year-end outstanding checklist.
Explanation: The auditor should obtain bank cutoff statements that include transactions for 10 to 15 days after year-end. The outstanding checks and deposits in transit at year end on the bank reconciliation should agree with the information in the bank cutoff statement.
What is check kiting?
Kiting occurs when a check drawn on one bank is deposited in another bank and no record is made of the disbursement in the balance of the first bank (cash is recorded at 2 places at once).
How do you detect Kiting?
To detect kiting effectively, the cash deposits in transit at the end of a period and the paid checks returned with the bank statements of the next period must be examined.
This is accomplished by preparing a bank transfer schedule.
A bank transfer schedule compares the dates checks are drawn to the dates checks are deposited.
What is Lapping?
Lapping involves withholding and not recording current receipts of cash or checks. The unrecorded receipt is covered by applying a subsequent receipt to the previously unrecorded account.
The best method to guard against lapping is a “lock box” system.
What should a responsible employee do immediately upon receiving checks from customers by mail?
The employee should prepare a duplicate listing of checks received (also called a remittance listing)
What are some effective controls to reduce billing errors?
- Using computer programmed controls on the pricing and mathematical accuracy of sales invoices
- Matching shipping documents with approved sales orders before invoice preparation.
- Comparing control totals for shipping documents with corresponding totals for sales invoices.
What test of controls would most likely help assure an auditor that goods shipped are properly billed?
Tracing a sample of shipping documents to matching sales invoices
What is the objective of auditing procedures applied to segment information?
The auditor’s objective is to provide a reasonable basis for concluding whether segment information is presented in conformity with GAAP.
