Performing Further Procedures, Forming Conclusions, etc Flashcards
What is the presumption in every audit regarding revenue recognition?
Material misstatement due to fraud
What is proper segregation of functions in a sales transaction?
-Serially numbered sales order
-Credit approval
-Serially numbered bill of lading
-Serially numbered sales invoice
What is proper segregation of function in an AR transaction?
-Reconciling GL and subsidiary ledger
-Elimination upon payment
-Aging schedules
-Serially numbered receiving reports
-Sales discounts
Which department is responsible?
1. receive approved sales order from credit department
2. Pull inventory from warehouse and release to shipping
3. perform independent check of goods received
4. bill of lading
Shipping (warehouse)
Which department is responsible?
1. Prepare prenumbered sales order
2. perform credit check (authorization)
3. approve credit for returns
4. follow up on old or past due accounts
5. initiate write offs
Credit
Which department?
Inquires about credit procedures
Credit
Which department?
Observe the creation of a sales orders
Warehouse
If you were to inspect a sample of prenumbered shipping documents, what would be a reasonable existence test?
Agree to sales order
Which department?
1. Match shipping documents and sales orders before preparing invoice
2. periodically account for all prenumbered shipping docs
3. Prepare prenumbered shipping documents
4. Print sales journal
5. Print sales summary
AR
Which department?
1. Receives sales summary
2. perform independent check of invoice batch total
3. review sale account classifications
4. Post to GL
Accounting
Which assertion is covered? Revenue
Vouch a sample of sales invoices to shipping documents and approved sales order
Existence
Which assertion is covered? Revenue
Trace a sample of shipping documents to sales invoice, sales journal, and AR master file
Completeness
Start with source document and locate in accounting records
Tracing
What assertion does tracing help with?
Completeness
Start with accounting records and locate source document
Vouching
What assertion does vouching help with?
Existence
Shipping Doc –> Invoice –> Sales Journal
tracing
Sales Journal –> Invoice –> Shipping Doc
vouching
What assertion? Sales
Trace a sample of shipping documents to the corresponding sales invoice and to the sales journal and AR subsidiary ledger
completeness
What assertion? Sales
Compare a sample of sales invoices from shortly before and after year end with shipment dates
Cutoff
What assertion? Sales
Compare prices and terms on a sample of sales invoices with authorized price lists and terms of trade to determine whether sales are recorded at the appropriate amount
VAA
What assertion? Sales
Vouch a sample of sales transactions from the sales journal to the sales invoice back to the customer order and shipping documents
EO
What assertion? Sales
Examine a sample of sales invoices for proper classification into appropriate revenue accounts
understandability
What assertion? AR
Obtain an aged trial balance of AR and trace the total to the GL ledger control account
Completeness
What assertion? AR
Examine results of confirmations and test the adequacy of the allowance for doubtful accounts
VAA
What assertion? AR
Confirm AR
EO
What assertion? AR
Review bank confirms and debt agreements for liens and inquire that no AR has been factored or sold
RO
