Audit test 2 Flashcards
Business process
he set of connected activities linked with each
other for the purpose of achieving one or more business objectives
Top-Down
Begins at the entity level with the organization’s objectives, and then identifies the key processes critical to the success of each of the organization’s objectives.
Bottom-Up Approach
Begins by looking at all processes directly at the activity level, and then aggregates the identified processes across the organization.
Business processes/risks (Retail Store)
Customer selects goods - Pays for or promises to pay - customer accepts possession of goods.
Responses to Risks
Accept
Avoid
Pursue - action take to accept risk in order to improve performance
Reduce - action taken to reduce risk, while still continuing current operations
Share - action taken to reduce risk by transferring some risk to another party
Quality of audit
Competence and independence
Individual Objectivity
: an unbiased mental attitude.
Organizational Independence
: The freedom from conditions that threaten the ability of the internal audit function to carry out internal audit responsibilities free from interference.
Due Professional Care
: The care and skill expected of a reasonably prudent and competent internal auditor.
Integrity and Objectivity rule
In the performance of any professional
service, a member shall maintain objectivity
and integrity, shall be free of conflicts of
interest, and shall not knowingly
misrepresent facts or subordinate his or her
judgment to others.
Prohibited Business Relationship
The independence of a CPA is impaired if CPA performs a managerial or other significant role for an entity’s organization during the time period covered by an attest engagement
Risk management
Is a process conducted by management to understand and deal with uncertainties that could affect the ability to achieve its business objectives
Competence and capabilities
Experience & expertise
Professional Due Care
care and skill expected from an competent internal auditor
Professional Skepticism
Auditors take nothing for granted, they continuously question what they hear and see and critically assess audit evidence.
reasonable Assurance:
A level of assurance that is supported by GAAP procedures and judgements
Vouching
Tracking information backward from one document or record to a PREVIOUSLY prepared document or record or to a tangible resource.
Tracking
Tracking information FORWARD from one document, record, or tangible resource to a subsequently prepared document or record.
Analytical Procedures
Assessing information obtained during an engagement by comparing the information with expectations identified or developed by the Internal Auditor
Persuasiveness of Audit
Relevant, Reliable, Sufficient
Relevant
does the evidence pertain to the audit objective? Does it logically support the internal auditor’s conclusion or advice
Sufficient
Has the internal auditor obtained enough evidence?
Reliable
Did the evidence come from a credible source? Did the Internal Auditor directly obtain the evidence
Persuasiveness of evidence
Competent-relevant, reliability
Sufficiency - Quantity
Reliability of Evidence
High - Documents prepared by internal Auditors. Documents sent directly from 3rd party. (Cutoff bank stmts)
Medium - Documents created by 3rd party, sent to organization, then sent to internal auditors. (Vendor invoices)
Low - Documents created by organization (written policy stmts, time cards)
Inspection procedure
examine stuff
Reperformance
Recalculation to confirm amounts are EXACT
Confirmation
going to 3rd party to confirm account numbers
Existence or occurrence
Going Backward to get to the beginning of the transaction.
Rights and obligations
Company holds the rights to the assets, while liabilities are the obligations of the company
Competness
Starting at the beginning and working forward to the end of the transaction.
Valuation
The way in which a company gets depreciation expense or allowance for doubtful accounts
Accuracy
The correct #s are on the financials
presentation and disclosure
Accounts are classified in accordance to GAPP and financial stmt disclosures are complete, appropriate, and clear
Authorization
all transactions are properly authorized
SALES
Shipping document -> Sales Journal -> G/L
Completeness - all earned income was recorded
SALES
Shipping document <- Sales Journal <- G/L
Existence - all recorded transactions are valid or earned
PURCHASES
Receiving Report -> vendor invoice -> Purchases journal
Completeness - make sure all recieving reports have made it to the books
PURCHASES
Receiving Report <- vendor invoice <- Purchases journal
Existence - To make sure all recorded purchases are valid
Audit risk model
AR = IR * CR * DR
Coso cube component’s
Control Environment, Risk Assessment, Control Activities, INFO/Communication, monitoring activities.
Planning Audit Engagement
- determine objectives/scope
- understand auditee, including auditee objectives and assertions
3.Identify and assess risks
4.Identify key controls
5.Evaluate adequacy of control design - Create a test plan
- Develop a work program
- allocate resources to engagement
Ask the organization’s outside legal counsel to provide info about any litigation claims, and/or assessments against the organization
Inquiry
Compare a sample of check copies to support voucher packets to test the validity of the checks
Vouching
Examine selected inventory items to determine their condition
Inspection
Watch employees involved in executing and recording cash disbursement transactions to determine whether they are performing their assigned responsibilities
observation
Track internal auditor test counts of inventory to the auditee’s inventory compilation records to verify that the counts are properly included in the compilation
tracking
Recalc accumulated depreciation expense to verify that they were calculated correctly
Reperformance
calc accounts payable turnover for the current year and preceding 2 periods as evidence of vendor payment periods
Analytical procedures
Contact banks to ensure that the recorded account bank balances agree w their records
confirmation
There are no unrecorded receivables
completeness
Receivables have not been sold
rights+obligations
There is adequate provision for uncollectible accounts
valuation
All accounts in AR TB are expected to be collected within one year
disclosure/presentation
Any agreement or condition that restricts the nature of trade receivables is known to be disclosed
disclosure/presentation
All accounts on the list arose from the normal course of business and are not due from related parties
disclosure/presentation
No sales transactions from the next period were recorded in the current period
Cutoff
Total AR subsidiary accounts agree with the total in the AR TB
Accuracy
There are no receivables that do not correspond w goods having been shipped
Existence
All credit sales adhere to the credit policy
authorizations
Documents for A/R-Sales
Shipping document (BOL) - Sales invoice - Sales journal
Documents for Purchases/AR
Receiving report - Vendor invoice - Purchases Journal
