Other Transaction Cycles M6

Question 1

What are the audit procedures to test valuation, allocation, and accuracy manager assertions?

Answer 1

DISCLOSURES

• Determine if all transactions and communication is presented in the correct amounts.
• Substantive procedure to test related to the client’s stockholders’ equity is to analyze the client’s retained earnings account by reviewing the propriety of the direct entries to the retained earnings account starting with the date of the previous audit.
• Re-compute the value assigned to stock transactions for the year.
• Re-calculating standard overhead rates
• Listed prices for securities

Question 2

What are the audit procedures to test rights and obligations, and occurrence manager assertions?

Answer 2

DISCLOSURES

• The auditor would compare disclosures to other audit
  evidence to make sure that the disclosed information has occurred.
• The auditor would inquire about the client’s accruals to determine proper disclosure to ensure auditor met obligations.

Question 3

What are the audit procedures to test understandability of presentation and classification manager assertions?

Answer 3

DISCLOSURES

• This involves reading the disclosures for understandability.
• Perform inquiries of management
• Confirmations of inventory pledged loan aggreements

Question 4

What are the audit procedures to test completeness manager assertions?

Answer 4

DISCLOSURES

• The auditor would ensure that all required disclosures are included in the footnotes to the financial statements.
• Send third-party confirmations to vendors for understatements
• Cut-Off Procedures for inventory, etc.
• Tracing from receiving reports, vendor invoices, to inventory tags, to inventory schedule.
• We would be looking for unrecorded receivables.

Question 5

What are the audit procedures to test Existence and occurrences manager assertions?

Answer 5

• Vouch transactions recorded in the current period to the board minutes or any other source documents
• Confirmations to client custormers for receivables for over statements
• Inventory schedule to the tags, to the auditor count sheet
• Cut-Off Procedures
• Evaluated by inspection

Question 6

Financing Cycle

What is the primary responsibility of the bank acting as registrar of capital stock?

Financing Cycle

Answer 6

• Large companies often use a registrar to provide registration
  services and maintain the stockholder list.
• The primary responsibility of the registrar is to verify that stock is issued only with proper authorization.

Question 7

What is the proper ARC related to payroll?

Answer 7

AUTHORIZATION - Personell Department

• Approving timesheets
• Personnel department to authorize new hires and approve annual increases.

RECORDKEEPING - Payroll Department

• Payroll department to compute and record payroll information (i.e., prepare the payroll register) as well as to prepare paychecks. (Remember that the paychecks do not constitute cash until they are signed).

CUSTODY - Treasurer

• It is appropriate for the treasurer to sign and distribute paychecks, as well as to hold any unclaimed checks, as these are all custodial
  functions.