Final Exam Flashcards
What are the Auditor’s Objectives for Cash?
Consider inherent risks Understand internal controls Existence Completeness Accuracy Cutoff Presentation Rights
What accounts are under cash?
Checking
Savings
Petty Cash
Short Term Investments
What are Auditor’s Objectives for Investments?
Consider inherent risks Understand internal controls Existence Completeness Accuracy Cutoff Presentation Rights Valuation
What are Auditor’s Objectives for Receivables?
Consider inherent risks Understand internal controls Existence Completeness Accuracy Cutoff Presentation Rights Valuation
What are Auditor’s Objectives for Inventories?
Consider inherent risks Understand internal controls Existence Completeness Accuracy Cutoff Presentation Rights Valuation
What are Auditor’s Objectives for PPE?
Consider inherent risks Understand internal controls Existence Completeness Accuracy Cutoff Presentation Rights Valuation
What are Auditor’s Objectives of Liabilities?
Consider inherent risks Understand internal controls Existence Completeness Accuracy Cutoff Presentation Obligation Valuation
What are Auditor’s Objectives of Debt Equity?
Consider inherent risks Understand internal controls Existence Completeness Accuracy Cutoff Presentation Obligation Valuation
What are Auditor’s Objectives of Capital Equity?
Consider inherent risks Understand internal controls Existence Completeness Accuracy Cutoff Presentation Valuation
What account is under investments?
Long Term Investments
What are some related accounts to investments?
Interest Income
Dividend Income
What are some overall internal controls of Cash?
Received Cash Recorded Cash Deposit Cash Timely Disbursements Authorized Disbursements Recorded Adequate Cash Balances Cash Forecasts Reasonable
What are some overall internal controls of Investments?
Formal Investment Policies Investment Committee of Board Decides Separation of Duties Complete Detailed Records Securities Registered in Company Name Periodic Physical Inspection Of Securities Appropriate Accounting
What are internal control details of cash?
More than one person involved Separate cash handling and recording Centralize receiving of cash Record receipts timely Customer given receipt Cash deposited daily Disbursements by check Bank reconciliations Compare to forecasts
What are the audit steps of all categories?
A: Understand inherent risk
B: Understand internal controls
C: Asses risk of material misstatements and design further audit procedures
D: Perform further audit procedures: tests of controls
E: Perform further audit procedures: subtantive tests
What are tests of controls for cash?
Test accounting records and reconciliations
Cash receipts test
Cash disbursements test
What are substantive tests for cash?
1: Obtain analysis of cash balances and reconcile to G/L
2: Bank Confirmations
3: Review/prepare bank reconciliation as of balance sheet date
4: Obtain cutoff bank statement showing transactions at least 7 days after balance sheet date
5: Count and list cash on hand
6: Verify the client’s cutoff of cash receipts and cash disbursements
7: Analyze bank transfers for the last week of audit year and first week of following year
8: Investigate related party transactions
9: Evaluate F/S presentation/disclosure
What are tests of controls for investments?
Trace transactions through system
Review/test reports of investment activity
Inspect internal auditor inspection reports
Inspect monthly reports on investments
Revise risk assessment if needed
What are substantive tests for investments?
1: Obtain analysis of investment accounts and related revenue gain/loss…reconcile to ledger
2: Inspect securities
3: Confirm with holders
4: Vouch selected purchases/sales…verify client’s cutoff
5: Review investment committee minutes
6: Perform analytical review
7: Recompute revenue from securities
8: Inspect documentation of managements intent regarding derivatives/hedging
9: Evaluate accounting method
10: Test valuation
11: Evaluate F/S presentation/disclosure
What are accounts of receivables?
Accounts Receivable
Notes Receivable
Interest Receivable
What are related accounts of receivables?
Sales
Sales A/R
Sales Discounts
Interest Income
What is the account of inventories?
Inventory
What is the related account to inventories?
Cost of Goods Sold
What are the overall internal controls of receivables?
Segregation of duties Credit policies Customer's orders Issuing merchandise Shipping Billing Collections of A/R Adjustments to sales A/R
What are the overall internal controls of inventories?
Commitment to competence
Integrity and ethical values
Organization structure
What are the internal controls details of receivables?
Notes reviewed/authorized
Write-Off of notes approved
What are the internal controls details of inventories?
Purchasing Receiving Storing Issuing Production
What are tests of controls of receivables?
Examine sales transactions Compare shipping doc to invoices Review use/authorization of credit memos Reconcile cash register tapes/sales tickets with sales journals Test IT application Review revenue estimates Revise risk assessment if needed
What are tests of controls of inventories?
Examine purchases
Test cost accounting system
What are substantive tests for receivables?
1: Obtain aged trial balance of A/R…reconcile to ledger
2: Obtain analyses of N/R and interest
3: Inspect notes on hand and confirm
4: Confirm receivables with debtors
5: Review year end cutoff of sales
6: Perform analytical review
7: Review year end sales contracts
8: Verify interest income & receivable
9: Evaluate accounting methods
10: Evaluate accounting estimates
11: Determine adequacy of allowance for D/A
12: Ascertain whether any A/R pledged
13: Investigate related party receivables
14: Evaluate unusual/significant sales
15: Evaluate F/S presentation/disclosure
What are substantive tests for inventories?
1: Reconcile inventory listing to G/L
2: Evaluate planning of inventory
3: Observe taking of inventory/test count
4: Review year-end cutoff of purchases/sales
5: Test completed inventory for accuracy…trace test counts
6: Evaluate inventory pricing
7: Test pricing of inventories
8: Perform analytical procedures
9: Determine whether inventories pledged…review purchase/sales commitments
10: Evaluate F/S presentation
What accounts are under PPE?
Land Land improvements Buildings Equipment Accumulated depreciation
What accounts are related to PPE?
Depreciation Expense
Repairs/Maintenance Expense
What accounts are under liabilities?
Accounts Payable Interest Payable Salaries Payable Unearned Revenue Notes Payable
What are the related accounts for liablities?
Expenses
Interest Expense
What are the overall internal controls of PPE?
Subsidiary ledger Authorizations/work orders Variances authorized/actual costs Policy for capitalizing vs expensing All purchases through purchasing dept Physical inventories Retirement procedures
What are the overall internal controls of liabilities?
Purchasing
Receiving
Vouchers
Vendor’s statements
What are tests of controls of liabilities?
Verify posting to A/P subsidiary
Vouch postings to supporting doc
Test IT applications
What are substantive tests for PPE?
1: Reconcile summary of changes to G/L
2: Vouch addition to PPE
3: Inspect major acquisitions
4: Analyze repair and maintenance expense accts
5: Investigate status of PPE not in use
6: Test depreciation expense/methods
7: Investigate impairments of PPE
8: Investigate retirements of PPE
9: Examine evidence of legal ownership
10: Review rental revenue from leases
11: Examine lease agreements
12: Perform analytical review procedures
13: Evaluate F/S presentation/disclosure
What are substantive tests for liabilities?
1: Reconcile A/P to G/L
2: Vouch A/P balances to docs
3: Reconcile A/P to creditor statements
4: Confirm A/P with vendors
5: Perform analytical procedures
6: Search for unrecorded liabilities
7: Identify A/P from related parties
8: Evaluate F/S presentation/disclosure
What account is under debt equity?
Bonds Payable
What is the related account to debt equity?
Interest expense
What are the internal controls for debt equity?
Authorization by board
Use of independent trustee
Interest payments
What is the account for capital equity?
Capital Stock
What is the related account of capital equity?
Dividends
What are the overall internal controls of capital equity?
Board controls stock transactions Independent registrar and stock transfer agent Stock certificate book Stockholders ledger Dividends
What are substantive tests for debt equity?
1: Analyze debt and related accounts
2: Examine N/P
3: Confirm debt
4: Vouch borrowing/repayments
5: Perform analytical procedures
6: Recompute int exp, int pay, amortization of disc/prem
7: evaluate whether debt provisions have been met
8: Trace authority for debt issuance with corporate mins
9: Review N/P after B/S date
10: Identify N/P to related parties
11: Send confirmation letters to learn about financing arrangements
12: Evaluate F/S presentation/disclosure
What are substantive tests for capital equity?
1: Examine articles of incorporation, bylaws minutes
2: Analyze capital stock accounts
3: Account for proceeds from stock issues
4: Confirm shares outstanding
5: Reconcile stockholder’s records with G/L
6: Determine appropriate accounting applied to stock compensation plans
7: Determine compliance with restrictions/preferences pertaining to capital stock and disclosures are appropriate
