Unit 2 Flashcards
What are the 6 assertions at the account balance level
Classification
Completeness (is everything included?)
Rights and obligations ( do they belong to the company)
Accuracy, Valuation, Allocation
Existence (is everything on BS real, does it exist?)
Presentation (ensure classification is met first)
What are the assertions at the transaction level
Completeness (is everything included?)
Cut off
Classification
Accuracy (Are the transactions recorded at the appropriate amount.)
Occurrence (this transaction did not happen)
Presentation
What are the 7 types of procedures than an auditor may perform
Confirmation - high quality - moderately expensive
Inspection - high quality - moderate to high cost
Inquiry - moderate to low quality - low cost
Recalculation - high quality - low cost
Observation - high quality - high cost - (only for controls)
Analytical procedures - moderate reliable - low cost
Reperformance - high quality - high cost
What procedures are best for test of controls
Inspection - looking at documents the client uses for controls
inquiry - ask client about control procedures and processes
recalculation - recalc the result
observation - watching the client perform a control
reperformance - redoing a control process
What procedures are best for substantive tests of detail
Confirmation - may verify an account balance with third party
inspection - agree transactions to source documentation
inquiry - ask the client about there accounting policies
Recalculation - ensure accounts are calculated correctly
What procedures are best for analytical procedures
inquiry - ask about analytical procedures throughout the year
analytical procedures - perform analytical procedures
What assertion relates to this example: A payable or related expense is not recorded
Completeness
What assertion relates to this example: A company double records an invoice sent to a customer.
Existence For balance sheet - AR
Occurrence for income statement - sales
What assertion relates to this example: A company is charged $50 per hour for ads and received an invoice for 100 hours performed.
Company by accident recorded ads expenses and accounts payable for $500 not $5,000.
Accuracy, valuation and allocation - AP
Accuracy - ad expenses
What assertion relates to this example: Company holds goods on consignment, counts inventory and includes the consigned inventory in the count.
Rights and obligation - inventory overstated, AP overstated
What assertion relates to this example: A company ships goods on the last day of the year which only is recognized at FOB destination. The company credited revenue when goods were shipped.
Cut off - revenue overstated.
What assertion relates to this example: A company has recorded advertising expense within an amortization account.
classification
What assertion relates to this example: A company presented a capital asset in current assets.
Presentation.
What are the 5 control activities
Physical or logical controls
Authorization and approval
Independent verification
Reconciliation
segregation of duties
What control activity is: Access to the warehouse is limited to warehouse employees through key cards.
Physical or logical controls
