Chapter 4

Question 1

Check Kiting

Answer 1

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. Frequent kiting may result in a high level of deposits coupled with a low average balance.

Question 2

Assertions for auditing Balance sheet BALANCES (CVER)

Answer 2

Completeness
Valuation, Allocation, Accuracy
Existence (Assets)/Occurrence (Liabilities)
Rights and Obligations

Question 3

Assertions for auditing Income Statement TRANSACTIONS AND EVENTS (COVEU)

Answer 3

Completeness
cutOFF
Valuation, Allocation, Accuracy
Existence and Occurrence
Understandibility

Question 4

What is the auditor looking for when testing Completeness?

Answer 4

Has everything been recorded?

Question 5

What is the auditor looking for when testing Valuation?

Answer 5

Has the amount been recorded fairly at the appropriate amount? And has any necessary valuation adjustment been made?

Question 6

What is the auditor looking for when testing Existence/Occurrence?

Answer 6

Do all Balances exist? Have all transactions that have been recorded exist?

Question 7

What is the auditor looking for when testing Rights/Obligations?

Answer 7

Does the entity have rights to the Assets? Does the entity have Obligations to pay liabilities?

Question 8

What is the auditor looking for when testing Cutoff?

Answer 8

Have the transactions been recorded in the proper period?

Question 9

What are different tests you can do for completeness?

Answer 9

1) TRACING transactions from source documents to accounting recording
2) Analytical Review
3) OBSERVATION of processes and procedures

Question 10

What different tests can you do for cutoff?

Answer 10

1) Analyze transactions before and after year end

Question 11

What different tests can you do for valuation, allocation, and accuracy?

Answer 11

1) INSPECTION of supporting documents
2) FOOTING
3) INDEPENDENT RECALCULATION
4) RECONCILIATION to the General Ledger

Question 12

What different tests can you do for Existence and Occurrence?

Answer 12

1) CONFIRMATION with 3rd parties
2) OBSERVATION, INSPECTION, and EXAMINATION of assets, processes, and procedures
3) VOUCHING of transactions from FS back to supporting documents

Question 13

What different tests can you do for Rights/Obligations?

Answer 13

1) INSPECT supporting documents

Question 14

What different tests can you do for Understandability and Classification?

Answer 14

1) INSPECTION of supporting documents
2) REVIEW of all related disclosures for compliance with GAAP
3) INQUIRY WITH MANAGEMENT regarding disclosures for accounts

Question 15

Segregation of duties three duties are? (ARC)

Answer 15

Authority
Record Keeping
Custody