Procedures Flashcards
When should you use positive versus negative confirmation requests
Positive: When balances are relatively large, errors exist, fraud, weak internal controls
Negative: assessed level of control risk is low
What is a test of detail
Tests of details include tracing figures to supporting documentation to determine if ransactions are valid, properly classified, accurate and complete
What is completeness
One of the assertions auditors make over the financial statements
* Ensuring each transaction is present in the financial statements
* Done by doing walkthroughs from the purchase order to the financial statements
* Examining documents for debt
What is cutoff
One of the assertions auditors make over the financial statements
* Ensure all sales/expenses were actually earned/recorded in the year
* Perform cutoff tests on shipments occurring close to B/S date (revenue)
* Examine revenue contracts
What is valuation, allocation, and accurracy
One of the assertions auditors make over the financial statements
* Reconciliation of invoices to Price List (Valuation) & Recalculation (AccurracY)
* Expenses are assigned where they need to be
* Making sure accounts receivable aging is proper (recalculate ADA)
* Verify subsequent collection
What is existence
One of the assertions auditors make over the financial statements
* Making sure each transaction exists
* Typically used for revenue/assets because an overstatement of expenses is not an issue
* Trace transactions from financial statement to purchase order
* Physically checking if assets exists. Inventory count
How do you confirm existence of Accounts Receivable
What is Presumptively Mandatory
Something that is mandatory and if you do not do it you must document why
Example: Legal Contingencies
What must you consider when addressing legal contingencies
- Management representation letter
- Third party review
- If management does not let you contact lawyers (diclose in quaified)
- Review recent legal expenses
When should you rely on internal auditors
In areas with low risk and little judgement. For example testing internal controls. They cannot make judgements
What should you consider before relying on internal auditors
Consider the competency of the internal auditors, their independence from management, experience in the field, certifications (must acquire proof), and prior experience working with them.
What responsibility does the internal auditor share with the external audit
None. All responsibility falls on the external auditor
What must you ensure before using the work of a component auditor
- Component Auditor used GAAS
- Audit report is not restricted as to use
- Prepared using the same financial reporting framework or if main items are similar
What happens if management refuses to correct mistatements
Ask why they are not fixing it. Evaluate impact on audit opinion by projecting errors in the financial statements
- Immaterial = Unqualified
- Material = Qualified
- Material and Perverse = Adverse
What procedures are mandatory during the course of the audit
- Obtaining representation letters
- Analytical Procedures
What happens during a quality control review
Another partner at the firm reviews the audit work/opinion and must agree. Otherwise more substantive tests will be performed
Concurring approval is not required for private audits
What is the difference between a current file and a permanent file
Permanent files are are files that do not change year over year
1. Bylaws
2. Internal Controls layout
3. Deeds
Current files are files only relevant to that year of the audit
What is the difference between a current file and a permanent file
Permanent files are are files that do not change year over year
1. Bylaws
2. Internal Controls layout
3. Deeds
Current files are files only relevant to that year of the audit
What happens after you finish the audit and declare an opinion
You have 45 days (public) or 60 days (private) to clean up the files for release
Only formatting changes are allowed, you cannot change the opinon
What is vouching
Vouching is a procedure that auditors use to authorize the credibility of the entries allowed in the books of accounts. In other words, it is the documentation (original or photocopies of originals) that helps the auditors to check the authentication and the accuracy of the documents that the client has presented.
What are some transactions an auditor would use vouching for
- Verifying opening and closing balances
- Cash received from debtors
- Loan repayments
- Other income received
What is a type 1 event
Type 1 events - Provide evidence of conditions existing at Balance Sheet date that require an adjustment in the Financial Statements
What is a type 2 event
Type 2 events - Do not affect Financial Statements, as the condition did not exist at Balance Sheet Date, but may still need to be disclosed to ensure Financial Statements do not become misleading
What are procedures performed for tracing and vouching in inventory
Inventory Tags to Inventory Listing Schedule = Tracing = Completeness
Inventory Listing Schedule to Inventory Tags = Vouching = Existence (Validity)
What types of accounts is an auditor most likely to test during interim
Income statement accounts. Not balance sheet
