IC- Transaction Cycles Flashcards
List 2 access controls applicable to the revenue/receipts (sales transactions) business process.
1-Computer passwords limit access
2-Cash receipts are handled by someone without access to accounts receivable record keeping.
List some procedures used to ensure segregation of duties in the Cash Receipts business cycle.
(by separate individuals):
1-Opening mail, handling checks received, and preparing remittance listing
2-Making deposit (daily)
3-Applying payments received to customer accounts
Preparing bank reconciliation on a timely basis.
List some procedures used to ensure segregation of duties in the Expenditure business cycle.
1-Separate purchasing department
2-Purchasing personnel independent from receiving and recording
3-Bank reconciliations are prepared by someone not having other involvement in handling cash receipts, disbursements, or record-keeping
What comparison techniques can be used by the auditor to ensure appropriateness of transactions in the Expenditure business cycle?
1-Compare suppliers’ monthly statements with recorded payables
2-Compare purchase order to receiving document to vendor’s invoice
What comparisons should be made within the entity to ensure the appropriateness of payroll transactions?
1-Payroll information should be periodically matched to information in personnel files;
2-Payroll checks should be compared to entries on the payroll register;
3-Amounts on the payroll register should be agreed to the applicable general ledger accounts.
Verifying the use of and accounting for prenumbered documents supports management’s financial statement assertion of…?
completeness
The element of the audit planning process most likely to be agreed upon with the client before implementation of the audit strategy is the determination of the..?
Timing of inventory observation procedures to be performed
An auditor suspects that a client’s cashier is misappropriating cash receipts for personal use by lapping customer checks received in the mail. In attempting to uncover this embezzlement scheme, the auditor most likely would compare the…?
dates checks are deposited per bank statements with the dates remittance credits are recorded
How does auditor obtain understanding of the various components for the revenue cycle
[SACRED]
Start (Initiation) transaction process
Authorization
Completion or execution of the flow of docs, services, goods through the system
Recording in financial records
Evaluate Defenses (verification)- checks and balances to make sure system functioning properly
What are the duties to be segregated?
[ARCC-s] Authorization Recording Custody Comparison
Examples of procedures used to understand IC structure related to the spending cycle
[PRAISE]
Physical controls
Recording (rec’v reports for goods purchased, debit memos for goods returned)
Authorization (vouch checks to PO’s, rec’v reports, invoices, vouchers)
Independent checks (client reconciles inventory)
Segregation of duties- use inquiry and observation
Tracing and vouching compliments which assertions?
Completeness and existence, respectively
Sales clerk
Accepts orders from customers and prepares written sales orders using internal prenumbered forms (PPN)
* Recording
Billing clerk
Prepares sales invoice to send to customers
* Recording
Revenue cycle segregation of duties - custody
Authorizing sales, recording A/R, and having custody of inventory
In the spending cycle, what happens to the purchase order?
PO is prepared by purchasing clerk to send to vendor, additional copies sent to receiving department to authorize to accept delivery; and copy to payables dept to enable comparisons later (rec’v copy does not include quantity; payables clerk compares PO and rec’v report with vendor invoice before preparing voucher)
Personnel and Payroll cycle departments
Personnel- authorization, hiring/firing, pay rate changes
Payroll- recording, update payroll, calculate
Treasurer- custody, responsible for paying/signing the checks (unclaimed should remain here until distributed or voided)
List to identify strengths and weaknesses in IC based on narrative/flowchart..
- Determine if symbol/sentence represents a control activity (PIPS)
- Identify the assertion that control activity relates to (CPA-CO or RACE)
- Evaluate whether control is likely to be effective in providing assurance that error/fraud will not cause a misrepresentation related to the assertion if operating effectively
- Based on which of the components affected (ARCC), ascertain that it is not being performed in the same department/same party performing incompatible function
What management assertion does comparing shipping documents to sales invoices fulfill?
Verifies that all shipments have been billed
Completeness
What management assertion does comparing sales invoices to shipping documents fulfill?
Verifies that all bills are for goods actually shipped
Existence or occurrence
To determine whether a particular assertion is relevant to a significant account balance or disclosure, the auditor should evaluate…
- Nature of the assertion,
- Volume of transactions or data related to the assertion
- Nature/complexity of the systems, including the use of IT, by which the entity processes and controls information supporting the assertion.
What is the most likely course of action that an auditor would take after determining that performing substantive tests on inventory will take less time than performing tests of controls?
Perform only substantive tests on inventory.
Tracing shipping documents to prenumbered sales invoices provides evidence that:
shipments to customers were properly invoiced
Name the appropriate IC: Invoices for goods sold are posted to incorrect customer accounts
Monthly statements are mailed to all customers with o/s balances (likely to be noticed by customer)
Name the IC: Invoices are sent for shipped goods but are not recorded in the sales journal
Daily sales summaries are compared with control totals of invoices
Name the IC: Invoices are sent to to allies in a fraudulent scheme and sales are recorded for fictitious transactions
Sales invoices are compared with shipping documents and approved customer orders before invoices are mailed
Name the IC: Different customer accounts are each credited for the same cash receipt
Total amount posted to the AR ledger from remittance advices are compared with a validated bank deposit slip
