Module 4 Flashcards
The assertion of Existence and Occurrence states that?
Assets, liabilities, and equity interests exist, and recorded transactions and events have occurred
The assertion of Presentation and Disclosure tries to determine that?
Accounts are described and classified in accordance with GAAP, and financial statement disclosure are complete, appropriate, and clearly expressed
The Assertion of Rights and Obligations states that?
The company holds rights to the assets, an liabilities are the obligations of the company.
The assertion of Completeness and cutoff states that?
all assets, liabilities, equity interests, and transactions that should have been recorded have been recorded, and all transactions and events are recorded in the appropriate accounting period
The Assertion of Valuation, allocation, and accuracy states that?
All transactions, assets, liabilities, and equity interests are included int the financial statements at proper amounts.
What is the ranking order of evidence obtained? What is most reliable?
1- Evidence from independent sources provides more assurance than evidence secured solely from within the company
2- Information from direct personal knowledge is more persuasive than information obtained indirectly
3- Assertions developed under effective internal control are more reliable than those developed in the absence of internal control
In gathering sufficient appropriate audit evidence, auditors seek an efficient and effective combination of 3 items. What are they?
1- Tests of controls
2- Analytical procedures
3- Tests of details to afford a reasonable basis for an opinion
What is the overall concept of Presentation and disclosure? and what are typical procedures to test?
Think in terms of whether proper disclosures are presented and that financial statements are properly classified, (current and non current Debt)
Typical Procedure - considered completeness of disclosures
What is the overall concept of existence and occurrence, and what are typical procedures to verify it?
Think in terms of whether RECORDED transactions and balances actually exist. This assertion is not directly related to the amount recorded (Valuation) but with whether transactions recorded should have been recorded.
Procedures - Confirmation (Cash, AR, Stock registrar), Inspection, Vouch Transactions
What is the overall concept of Rights and Obligations and how do you typically verify it?
Think in terms of whether the client owns the rights to the assets and liabilities are its obligations.
Procedures - Vouch Transaction, Authorization (See if needed authorization was received)
What is the Overall Concept of Completeness and Cutoff? and how is it tested?
Think in terms of whether all transactions and events have been recorded for completeness, not with whether recorded transactions are proper.
Procedures - Trace from Source to recorded entries, Analytical Procedures, Omissions, Cutoff
What is the overall concept of Valuation, Allocation, and Accuracy? And how is it tested?
Think in terms of whether proper amounts are recorded. Whereas existence addresses recorded transactions and events should be recorded, and completeness addresses whether all transactions and events that should have been recorded have been recorded, valuation addresses the amounts involved with the related items
Procedures - Foot schedules. Agree schedules to GL, Agree statements to schedules, Considered related accounts
What is Kiting?
Kiting is a form of fraud that overstates cash by causing it to be simultaneously included in two or more bank accounts. Kiting is possible because a check takes several days to clear the bank on which it is drawn. It is usually detected by preparing a bank transfer schedule (4 Column).
Bank Reconciliations are used by auditors (4 column, proof of cash) to reconcile?
1- All cash receipts and disbursements recorded on the books to those on the bank statement
2- All deposits and disbursements recorded on the bank statement to the books.
What is a Bank cut-off statement and why is it used?
It is a bank statement for the first 8-10 days of the new year, It is used to help auditors verify reconciling items on the year-end bank reconciliation. Cutoff tests, etc
