Chapter 10 Flashcards
the _______ of substantive testing depends on the risk assessment of the significant account or disclosure in question.
timing
The ______ the detection risk for an account, the less work will need to be performed, and the ______ the amount of audit evidence relating to the account that can be obtained through controls testing performed before year end.
higher, greater
Timing of substantive procedures
Reviewing events occurring prior to year end
Reviewing activity in the period to date
Performing general audit procedures prior to year end
Reviewing provisions prior to year end
Leverage off internal audit
Matters to consider when designing substantive procedures
Ensure that substantive procedures respond to specific risks
Take credit for work already undertaken
Set appropriate testing thresholds
Objectives in auditing cash (Answer is Assertion)
All cash on the balance sheet is held by the entity or by others (for example, a bank) for the entity.
Existence (E)
Objectives in auditing cash (Answer is Assertion)
All cash owned by the entity at year end is included in the balance sheet.
Completeness (C)
Objectives in auditing cash (Answer is Assertion)
The entity owns, or has legal rights to, all the cash on the balance sheet at year end. All cash is free from restrictions on use, liens, or other security interests, or, if it is not free, that such restrictions, liens, or other security interests are identified.
Rights and obligations (R&O)
Objectives in auditing cash (Answer is Assertion)
Cash is stated at its realizable value.
Valuation and allocation (V&A)
Objectives in auditing cash (Answer is Assertion)
Cash is properly classified, described, and disclosed in the financial statements, including the notes, and disclosures of any of the above-mentioned restrictions on use, etc., are made as required by application of an appropriate accounting framework (for example, International Financial Reporting Standards or Accounting Standards for Private Enterprises).
Classification (Cl), classification and understandability (C&U)
Example substantive tests of transactions—cash. Cash Receipts
Perform a proof of cash by reconciling activity per the client records to activity per the bank. Also, correlate these transactions to the activity in the sales and trade receivables ledgers. This procedure is limited to less complex engagements that have a limited number of transactions.
C, A
Example substantive tests of transactions—cash. Cash Receipts
Compare remittance advices or lists of cash receipts with entries in the cash receipts journal as to date, remitter, amount, and account classification.
C
Example substantive tests of transactions—cash. Cash Receipts
Compare the details of duplicate deposit slips with the entries in the cash receipts journal. Investigate abnormal delays in depositing cash receipts
C
Example substantive tests of transactions—cash. Cash Receipts
Compare the total amounts of daily deposits shown on the bank statement with the totals of the daily cash receipts shown in the cash receipts journal. Investigate unusual delays in depositing cash receipts and any splitting of daily cash receipts into separate deposits
C
Example substantive tests of transactions—cash. Cash Receipts
Agree invoice amounts to cash received for cash sales transactions. Agree cash collected to the recorded cash balance and supporting documents.
C
Example substantive tests of transactions—cash. Cash Receipts
Test the recording of miscellaneous receipts (that is, receipts not usually recorded in trade receivables, such as proceeds on disposal of assets or royalties); consider whether the recorded amounts are reasonable.
A
Example substantive tests of transactions—cash. Cash Receipts
Compare entries in the cash receipts journal (for example, date, remitter, amount, and account classification) with the remittance advices, lists of cash receipts, bank deposit slips, and bank statements.
E
Example substantive tests of transactions—cash. Cash Receipts
Test the accounting classifications of cash receipts
V&A
Example substantive tests of transactions—cash. Cash Receipts
Test the mathematical accuracy of the cash receipts journal
A
Example substantive tests of transactions—cash. Cash Receipts
Test the postings (processing) of the totals in the cash receipts journal to the general ledger and other subsidiary ledgers.
C
Example substantive tests of transactions—cash. Cash Receipts
Test the authorization of credits, discounts, and allowances in the cash receipts journal
E
Example substantive tests of transactions—cash. Cash Receipts
Test the posting of individual cash receipts from the cash receipts journal and supporting documents to the trade receivables sub-ledger
C