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ACCT 3222 > Ch 13: auditing cash and inventory > Flashcards

Ch 13: auditing cash and inventory Flashcards

1
Q

what are the initial procedures for cash balance? (hint: there’s 5)

A
  1. agree beginning balance to prior year working papers
  2. obtain cash trial balances/ schedules
  3. scan for unusual items
  4. check mathematical accuracy
  5. agree subsidiary ledger to general ledger
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2
Q

are substantive analytical procedures used when auditing cash and inventory?

A

not as often- they may not be meaningful for cash as cash balances may be difficult to predict due

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3
Q

cutoff testing is related to what kind of test

A

test of details of transactions

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4
Q

what is it called when auditors while auditing cash and inventory inspect last checks written at year end to cash disbursements journal?

A

cutoff testing

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5
Q

what is it called when auditors while auditing cash and inventory inspect last deposits made at year-end to cash receipts journal

A

cutoff testing

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6
Q

what does cutoff testing do when auditing cash and inventory?

A

ensure client records recorded in the proper period

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7
Q

under the test of details of transaction, the bank transfer schedule is used to detect what?

A

kiting

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8
Q

There is a ___________ risk of kiting with worse internal controls

A

higher

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9
Q

confirming cash balances falls under what test of details when auditing cash and inventory

A

test of details of balances

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10
Q

re performance when auditing cash and inventory falls under which test of details

A

test of details of balances

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11
Q

confirming cash balances tests what relevant assertions

A
  • existence
  • completeness
  • valuation
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12
Q

when confirming cash balances do you confirm the accounts with balances of 0?

A

yes- ALL account balances

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13
Q

confirms for cash balances are in a _________ from and from ____________

A

written- third party

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14
Q

what is being reperformed in the test of details of balances

A

year-end bank reconciliation

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15
Q

what do auditor’s obtain in the test of details of balances?

A

partial cutoff bank statement

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16
Q

what is the test of details for correct classifications on balance sheet and note disclosures

A

test of details of presentation and disclosure

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17
Q

how is a bond sinking fund classified on the financial statements

A

long-term asset

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18
Q

how are restrictions in cash put on the financial statements

A

listed separately on balance sheet and discloses im the notes

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19
Q

how are lines of credit put in the financial statements

A

described in the notes; any balance/ amount used is classified as a liability

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20
Q

how is a bank draft accounted classified in the financial statements

A

current liability

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21
Q

when planning the audit it is important for the auditor to:
- understand ______________
- understand _______________
- evaluate the ______________________

A
  • understand the account
  • understand the entity and its environment
  • evaluate the results of analytical procedures performed during planning
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22
Q

what are examples (3) of cash and cash equivalents

A

cash in bank, imprest bank accounts, cash equivalents

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23
Q

commercial paper, treasury bills, and money market funds are examples of what

A

cash equivalents

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24
Q

what is the excess of cash flow from operations over capital expenditures

A

free cash flow

25
Q

top performers in the country generate significant ___________

A

free cash flow

26
Q

its important for the auditor to understand how management ________ and manages __________ and to tailor the audit of cash accordingly

A

budgets; cash balances

27
Q

effective analytical procedures involve comparing cash balances with ____________ or with _____________________

A

forecasts or budgets; company policies regarding minimum cash balances and the investment of surplus cash

28
Q

when internal controls over the budgeting process are strong, it is usually most effective to compare cash balances with ____________

A

budgets and company policies

29
Q

there are significant inherent risks surrounding _________ and __________

A

cash receipts; disbursement transaction

30
Q

many schemes for stealing cash involve failing to record ________

A

cash receipts

31
Q

misappropriating assets during the period results in issues with which assertion

A

completeness

32
Q

inherent risks pertaining to rights and obligations and accuracy, valuation and allocation assertions for cash are usually _________

A

low bc no complexities involving rights, accounting measurements and estimates.

33
Q

the effectiveness of bank reconciliations depends on the adequacy of ____________

A

segregation of duties

34
Q

in companies with good segregation of duties, bank recs will also be tested at _______

A

interim

35
Q

if duties are not adequately segregated, auditor will follow a primarily ___________ approach

A

substantive

36
Q

if internal controls over cash receipts and disbursements appear to be effective they should be tested when?

A

at interim

37
Q

fraud risk is increased when control risk is ________

A

high

38
Q

the most important control over the existence completeness and accuracy and valuation of cash balances is ________________

A

an independent bank reconciliation

39
Q

if control risk is high the auditor should assume that fraud risk is _________

A

high

40
Q

when fraud risk is high, its important for the auditor to design _____________

A

substantive procedures

41
Q

test of cash balances focus on the assertions of:

A
  • existence
  • completeness
  • rights and obligations
  • accuracy, valuation and allocation
42
Q

what is the float period

A

when checks are written to transfer funds between accounts at different banks several days generally will elapse before the check clears the bank on which it’s drawn

43
Q

what is kiting

A

a method often used to conceal a cash shortage or to overstate cash; involves recording a transfer between bank accounts as a deposit while failing to record the cash disbursement in the same time period

44
Q

journal entires are not made based on when the check actually arrives but rather based on the ______________

A

economic event

45
Q

test of details of balances primarily on 2 major tests

A

(1) sending a bank confirmation and (2) testing the client’s bank reconciliation

46
Q

bank confirms test which relevant assertions

A
  • existence
  • completeness
  • accuracy, valuation and allocation assertions
47
Q

when the acceptable level of detection risk is high, the auditor may scan the client-prepared bank reconciliation and verify the ________________ of the rec

A

mathematical accuracy

48
Q

what is a cutoff bank statement

A

a bank statement for the period subsequent tot he date of the balance sheet that the client requests to send directly to the auditor

49
Q

deposits in transit on the bank rec can be vouched to _______________

A

deposits on the cutoff statement

50
Q

if the financial statements show a trend of increased profit margin combined with an increase int eh number of inventory turnover in days, inventory may be ____________

A

overstated

51
Q

a lengthening of inventory turnover days may indicate __________ or ______________ problems

A

existence; valuation

52
Q

cutoff problems can result in ________ inventory, __________ cost of goods sold and __________ gross margins

A

overstating; understating; overstating

53
Q

what is a cycle count

A

client frequently identifies small portions of items in perpetual inventory and count that on a rotating basis

54
Q

what is the three step process to determing the value of ending inventory

A
  1. client determines inventory quantities at each location
  2. compilation of inventory values is developed
  3. JE prepared to adjust the value of ending inventory and COGs based on physical count and compilation of inventory values
55
Q

observation of inventories is required when inventories are ____________ to a company’s financial statements

A

material

56
Q

the observation of counting inventories once and only once is related to which assertion

A

existence

57
Q

making test counts and tracing quantities to final counts is related to which assetion

A

completeness

58
Q

the auditor recording the last receiving and shipping documents used and determining goods received during the count is related to which assertion

A

cutoff

59
Q
A

ACCT 3222 (16 decks)

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