Auditing 4 Flashcards
What do you need to write down on the cheat sheet so that you know the relevant assertions and how they relate to balances, transactions, and disclosures?
Balances: OU (CVER)
Transactions: R (COVEU)
Disclosures: OE (CVRU)
What are the first four standard auditing procedures (“FIVE”)?
F- Footing Crossfooting and Recalculation
I- Inquiry of Internal and External
V- Vouching (backwards testing, Existence)
E- Examination (more for existence of asset than rights)
What are the second six standard auditing procedures (“CARROT”)?
C- Confirmation - Third Party (+ or -)
A- Analytical Procedure- “Scanning” another word
R- Reperformance
R- Reconciliation- Existence and Valuation
O- Observation
T- Tracing (forwards testing, Completeness)
What are the last four standard auditing procedures (“CARS”)?
C- Cutoff Review
A- Auditing Related Accounts
R- Rep Letter REQUIRED
S- Subsequent Events Review (Ex: LTD Decreases)
When would an auditor’s analytical procedures be made easier?
When the client is using A STANDARD COST VARIANCE SYSTEM to compare actual and budgeted data.
What assertion is related to AMORTIZATION?
Valuation and Allocation
How does an auditor improve his direct personal knowledge (most reliable evidence: “A”)?
Observation, Examination, Recalculation, Inspection
What are examples of internal evidence generated by the CLIENT?
Receiving Reports, Shipping Documents
What are examples of external evidence generated by EXTERNAL PARTIES?
Customer POs, Vendor Invoices, Packing Slips, Bank Statements, Confirmations, Bills of Lading
Why is Travel and Entertainment Expense a BAD I/S account for Analytical Procedures?
Because of the MGMT DISCRETION
What is the tricky way to list the reliability of audit evidence since they will not give you something easy on exam?
- Direct personal knowledge (they’ll say observation, examination, inspection, recalculation/reperformance)
- External evidence- 2 TYPES
(1: sent directly from external party and 2: received from being held by client) - Strong Internal Controls/Internal Documents from these controls (described in other question)
- Documentary Evidence
- Oral Evidence
What is the best way to perform procedures in auditing the statement of cash flows?
Reconcile amounts to OTHER FINANCIAL STATEMENTS
What does an auditor’s risk assessment affect?
The nature, extent, and timing of audit procedures
What assertion are you testing when you are testing for an entity’s credit rating?
Valuation, Allocation, and Accuracy
What are the auditing procedures related to COMPLETENESS? (Hint: 3)
- Tracing
- Analytical Review Proced.- how certain items are omitted
- Observation of process/procedure
What are the auditing procedures related to CUTOFF? (Hint: Come on man)
- Cutoff Procedures to analyze transactions in proper period (ONLY part of transactions)
What are the auditing procedures related to VALUATION, ALLOCATION, ACCURACY? (Hint: 4)
- Inspection of documentation and support
- Footing and crossfooting schedules
- Independent recalculation- AFDA recalc, credit checks
- Reconciliation of supporting schedule to G/L items
What are the auditing procedures related to EXISTENCE and OCCURRENCE? (Hint: 3)
- Confirmation of accounts with third parties
- Observation, Inspection, Examination (very persuasive)
- Vouching
What are the auditing procedures related to RIGHTS AND OBLIGATIONS? (Hint: 1)
- Inspection of documentation supporting transactions.
What are the auditing procedures related to UNDERSTANDABILITY AND CLASSIFICATION? (Hint: 3)
- Inspection of documentation supporting transactions.
- Review of all related disclosures for compliance GAAP
- Inquiry of MGMT regarding disclosures for account
What is a good usual example of segregation of duties involving cash disbursements?
Authorization- Purchasing/Requisitioning Department
Record Keeping- Accounts Payable/Accounting
Custody- Treasurer
What is the order of a typical sales (billing) transaction and the documents included?
- Receive CUSTOMER PO
- Prepare a PRENUMBER SALES ORDER for approval
- Credit Dept (Treasurer) Approves(Authorizes) and sends out Sales Orders to Billing, Shipping, and Accounting
- The Shipping Dept prepares Bill of Lading and then sends a copy to the customer and then goods are shipped and a receivable is created.
- The Billing Dept prepares a Sales Invoice where discounts are applied and sends Invoice to Customer
- Accounting records sale from sales order and invoice and a corresponding receivable
What is Lapping (related to Cash)?
Theft of cash by failing to account for the cash receipts. This is what we just went over in auditing class where one account is credited after they receive the receipt for the next A/R account that should have been credited.
What is Kiting (related to Cash)?
Check drawn on one bank is deposited into another bank but the disbursement from the first bank is not recorded so there is essentially TWO deposited checks on record.
If the auditor started with Shipping Documents and Traced to the Sales Invoices what would he be testing for?
That the shipments were properly billed. This tests for Completeness.
If the auditor started with Sales Invoices and traced to Shipping Documents what would he be testing for?
That the sales billed to the customer were actually shipped.
What assertion is being tested when you are verifying credit memos?
Valuation, Allocation, Accuracy (TRICKY)
If you do NOT receive a positive confirmation back after the second time what is something that you can do?
Ask the CLIENT to contact them for you
If Control Risk is assessed low for payroll and less substantive testing is necessary the auditor usually only has to do what two things?
Analytical Procedures
Recalculation of Payroll Accruals (Tricky)
What is a random and extremely tricky way to test for completeness for inventory?
Cutoff Procedures
Inventory Turnover tests what assertion?
Valuation and Allocation
If there is an INSIGNIFICANT amount of inventory in a warehouse what can you do BESIDES OBSERVATION that will count as OK?
get a CONFIRMATION
Inventory Classification and Understanding?
Loan Agreements
