General Auditing Deck

Question 0

Kiting

Answer 0

Cash is recorded at two places at once. Deposit is recorded before withdrawal.

Detection: Look for mismatch. A bank transfer schedule compares the dates checks are drawn on the disbursing bank to the dates checks are deposited in the receiving bank.

Question 1

Lapping

Answer 1

Using today’s receipts to cover yesterday’s theft.

Best guard: lockbox.

Detection: Compare the dollar amounts and dates on the bank deposit slips with the customer remittance credits recorded in the accounts receivable ledger.

Question 2

Cash internal controls

Answer 2

Separation of cash handling, record keeping, and reconciliation of bank statements should exist. Petty cash activities as well.

Question 3

Payroll Disclosures

Answer 3

1. Pension and post-retirement benefits.
2. Stock-based compensation disclosures.
3. Deferred compensation and profit-sharing plans.

Question 4

Board of Directors Authorization

Answer 4

Fixed assets, assets beyond a dollar threshold.

New debt financing.

Stocks.

Question 5

Objective of Audit Sampling

Answer 5

Obtain sufficient, appropriate audit evidence

Question 6

Audit Sampling Rules

Answer 6

1. Normal distribution, bell shaped curve, central limit theorem
2. Samples have to unrestricted and randomly selected
3. Sample must be large enough to be representative of entire population
4. Standard deviation is a measure of variability. More variability means larger sample size.

Question 7

Mean Per Unit Estimation

Answer 7

Estimate = average sample value x number of items in population

Question 8

Ratio Estimation

Answer 8

Audited values/book values x book value of population = point estimate

Question 9

Difference Estimation

Answer 9

Used instead of ratio estimation when the differences are not nearly proportional to book values.

(Audited/Book)/Sample size x Number of items in population = Dollar amount of adjustment