Harder Concepts Flashcards
What test would reveal understatement of sales?
Matching the Shipping documents to Sales invoices
E.g. If both do NOT match, this means client may not have recorded ALL Sales that they should have
What is Lapping?
The theft of a cash payment from one customer,
concealed by crediting that customer’s account when a second customer makes a payment.
What does “Source to Books” test?
Completeness
What does “Books to Source” test?
Existence
Confirmation of Accounts Receivable
Is a Generally Accepted Auditing Procedure
What purpose do Cash receipts after the balance sheet date serve?
How do they help the Auditor (CPA)?
They Provide the Best evidence of Collectability
How would I test for cutoff of transactions?
Trace Shipping documents to the accounting records;
Several days prior to and after year end
How many days after year end should I wait to request a cutoff bank statement?
7 to 10 Days
What does the standard form to confirm account information do?
It ONLY validates information that is stated on the confirmation request
How could I test for completeness of Cash?
By Tracing a sample of the daily remittance list to the validated deposit tickets
What is Kiting?
Recording a deposit from an interbank transfer in the current period; and
Failing to record the related disbursement until the next period
What would a test of bank transfers for the last part of the audit period tell me?
Whether cash disbursements were overstated because of Kiting
Why should I exercise control over cash and negotiable assets when I count cash?
To Prevent Substitution
E.g. To avoid the possibility of conversion of negotiable assets to cash which conceals a cash shortage
What is the primary reason for a cash budget?
To Ensure that enough funding is available at all times to satisfy your debt (e.g. Liabilities)
What testing procedure do today’s auditors place less importance on compared to 19th Century Auditors?
Examination of documentary support
