Other Assets, Liabilities, and Equities Flashcards
What procedure is the auditor not required to complete involving prepaid insurance accounts?
Confirm premium rates with an independent insurance broker
E.g. Paid checks and other documents are sufficient appropriate evidence
How do I calculate Net Sales?
Total sales minus returns and allowances
Note: Bad Debts are not included in the calculation
Why does an auditor calculate year-end counts of treasury stock certificates?
Because this procedure provides direct evidence that:
- the treasury stock exists; and
- is in the possession of the entity
Note: This procedure occurs when the amount of stock certificates is “material”
What assertion am I testing by confirming with an outside agent that they are holding investment securities in my client’s name?
The existence or occurrence and Rights and Obligations assertion
What assertion am I testing by determining whether restrictions have been imposed on retained earnings resulting from loans, agreements, or state law?
The Classification and understandability assertion
What is the most convincing evidence I can use to verify the amount of goodwill recorded by a client?
By comparing the recorded amounts of assets acquired and liabilities assumed with:
- the Fair values as evidenced by independent appraisals
How would I best test the reasonableness of dividend income from investments in issuers?
By computing the amount that should have been received and recorded by the client by:
- Electronically accessing the details of dividend records on the Internet
What evidence would help me to verify my client’s related mortgage acquisition costs?
- Cancelled Checks
- Closing Statements
- Interest Expense
What should I do if I am unable to bank count the securities of a safe-deposit box at the balance sheet date?
Ask the client to:
- Have the bank seal the safe-deposit box until I can count the securities at a later date
When auditing issuers of bonds, who should I obtain written confirmation regarding debenture transactions from?
The Trustee
E.g. The bond trustee is responsible for executing bond transactions
How would I determine whether retirements are unrecorded?
By vouching items from the accounting records to the physical assets they represent
E.g. Selecting certain items of equipment from the accounting records and locating them a plant
What should I do when a client’s company does not maintain its own stock records?
Obtain written confirmation from the transfer agent and registrar concerning:
- The number of shares issued and outstanding
What should I do when a client engages in transactions involving derivatives?
Determine whether the applicable reporting framework specifies the means of measuring fair value
E.g. Derivatives are measured at fair value
How would I conclude that depreciation charges are insufficient?
By noting excessive recurring losses on retired assets
E.g. Excessive recurring losses on assets retired indicate excess carrying amounts at the dates of disposition
The consequences are an:
- understating depreciation in prior periods
- overstatement of income in period of retirement
How could I check the accuracy of hours worked?
By comparing:
- clock cards with Shop job time tickets
