Deck 4 Flashcards
What is used to demonstrate trend analysis?
Line charts are best to utilize when performing trend analysis.
Scatter plots are best for analyzing relationships (allows regression analysis)
Bullet charts are used for variance analysis.
How would the auditor examine long term debt?
Auditor will correlate interest expense recorded for the period with outstanding debt. This analytical procedure will provide evidence of reasonableness of interest expense balance.
What are the factors to be considered in variable sampling sample size?
Expected misstatement, standard deviation and assessed level of risk (direct effects) as well as tolerable misstatement and acceptable level of risk (inverse effect).
What are the recommended risk assessment procedure by PCAOB?
Develop an understanding of client’s ICFR
Make inquiries about RMM
Perform analytical procedures specially related to revenue as part of risk assessment procedures.
It is not recommend to perform test of controls over selected transaction classes. Test of controls are performed after auditor completes risk assessment and may be done in conjunction with substantive audit procedures if they are deemed insufficient alone.
How would the auditor perform substantive tests for Equity in investee income is fairly stated?
Obtain and read financial statements and audit report of the investee.
In what scenario the auditor would express unmodified opinion and not add emphasis/other matter paragraph ?
If the auditor believes that there is probable likelihood of a material loss resulting from an uncertainty that is sufficiently supported and disclosed- unmodified opinion and would not add emphasis/other matter paragraph.
Add emphasis/other matter - A change in accounting principle (change in method of depreciation), related party transactions, subsequently discovered facts led to change in audit opinion.
which would the auditor considers while planning a sample for test of subsequent cash receipts?
Auditor tests subsequent cash receipts to determine if amounts reported in A/R at year end are fairly stated. Preliminary judgements about materiality are relevant since that will determine whether a potential misstatement is material.
Allowable risk of assessed control too low is relevant for test of controls.
How would the auditor tests completeness of long-term debt?
Review minutes of board of director’s meeting- to verify if long term debts are properly approved by BOD and recorded in F/S.
Tracing a sample of loan to subsequent payments or loan agreement tests existence.
How would the auditor assess rights & obligations assertion regarding inventory?
Auditor needs to make sure the entity owns the asset- examine invoices for purchase of inventory.
Reviewing supplier catalog will support valuation assertion to check if inventory is priced appropriately.
Inspection inventory on hand provide existence assertion and tracing purchase to purchase journal provide evidence of occurrence.
What assertion is tested when the auditor prepares dividend schedule and vouches it to dividend information available to public?
it tests occurrence. when management records dividend income it says dividend were actually received- occurrence and it recorded with correct amount -accuracy.
Vouching- Existence/occurence
Tracing - Completeness
While performing ADA for sales invoices & discounts, what procedures the auditor would perform to test reliability of data?
steps of ADA-
Plan the ADA.
Access and prepare data.
consider the relevance and reliability of data.
Perform ADA.
Evaluate the results.
Auditor will verify all sales invoices are accounted for, verify no duplicate invoices, reconcile sales revenue and discounts with Trial balance (completeness), investigate any discrepancies.
Test of controls for the sales cycle should have already been performed when auditor begins ADA. Auditor will consider the results of the test of controls.
What would the auditor perform to test completeness of A/P?
Tracing subsequent payments to amounts included in accounts payable listing (accounting records).
What are the two documents generated by revenue cycle?
Credit memos and sales invoices.
Customer orders are input at the beginning of the process, It’s not generated from revenue cycle. customer checks are remittances entered into the application at the top of flowchart.
Sales invoices, credit memo, remittance advices (for customer payments -prepared by the customers and mailed along with the check) are input document for credit sales and cash receipts flow chart.
Audit partner rotation rules under SEC
Lead and concurring partners must rotate off in every 5 years (time out period 5 years), other partners must rotate in 7 years (time out period 2 years).
small firms with less than 5 clients (issuers) are exempted from partner rotation.
