Transaction Cycle Trouble concepts

Question 1

Bank Cutoff Statement

Answer 1

Outstanding checks and deposit in transit at year end on bank Recs should agree with Bank Cutoff Statement

Question 2

Unrecorded Liabilities

Answer 2

Compare cash payments after B/S Date to related receiving reports and vendor invoices.

Transactions dated before year end should be recorded

Question 3

Vouchers Payable Department

Answer 3

1) Approves Vouchers

2) Reconciles vendor’s invoice with related receiving report.

Question 4

Completeness of A/R Ledger

Answer 4

Compare daily sales summary to daily postings to A/R Ledger

Question 5

Credit Approval

Answer 5

Testing Valuation and Allocation

Question 6

Auditor’s test of controls for completeness of sales

Answer 6

Trace sample of shipping documents to sales invoices

Question 7

Accounts Payable procedures

Answer 7

1) file invoices and supporting docs after payment
2) Math calculations should be verified prior to approving invoice for payment
2) compare purchase order, receiving report, vendor invoice prior to approving invoice for payment

Question 8

Safeguarding Stocks when independent trust agent is not used

Answer 8

Joint custody by 2 employees over Stocks kept in a Bank safe-deposit box

Question 9

Test unrecorded disposals

Answer 9

Select equipment from the accounting records and then see if they are physically present in the plant.

Question 10

Significant debits to Accumulation Depreciation explanation

Answer 10

Retirement of asset

Question 11

Auditor’s recorded test counts are higher than the quantity client’s perpetual inventory records

Answer 11

Failure to record Sales Returns

Question 12

Auditor’s recorded test counts are lower than the quantity client’s perpetual inventory records

Answer 12

Failure to record purchase returns

Question 13

Auditing long term bonds payable

Answer 13

Compare interest expense with bonds payable amount for reasonableness

Question 14

Scanning investment accounts just before and just after year end to determine if transfers are properly recorded

Answer 14

Trading/AFS/HTM are classified on the Balance sheet (Understandability and Classification) and valued at Market or Amortized costs (Valuation and Accruacy)

Question 15

Inventory (Classification & Understanding) Testing

Answer 15

confirming inventories pledged under loan agreements

Question 16

Tracing serial number on equipment to non-issuer subledger

Answer 16

completeness

Question 17

Unrecorded Retirements

Answer 17

Sample assets on property ledger and insurance/tax records and then tour the facilities

Question 18

Discover Lapping

Answer 18

Compare dates of checks deposited per bank to dates remittance credits/customer’s accounts are recorded

Question 19

Analytical procedures discovers lower than expected return on equity investment method. this could have been caused by

Answer 19

recording amortization too high - which lowers investment return.

Question 20

Test of details example that helps determine if amount in A/P has been misstated

Answer 20

Examining Vendor’s invoices for amounts not recorded as purchases

Question 21

Testing for completeness in inventory

Answer 21

Tracing from Inventory Schedule to Inventory Tags to Auditor’s recorded test count

Question 22

Testing for completeness in inventory

Answer 22

Tracing test counts to the report

Question 23

Testing for completeness in inventory

Answer 23

From Inventory Tags to the computerized list of inventory items

Question 24

Client is fraudulently overstating revenue by recording fake sales. How to test for it

Answer 24

Sample sales invoices and trace to related shipping documents