You can Account on me

Question 1

Confirmation is what kind of assertion

Answer 1

Existence

Question 2

Bill and Hold transaction

Answer 2

a sale prior to delivery of the goods. Sales may be inappropriately recorded

Question 3

What are the 4 assertions for acct balances at the end of the period

Answer 3

Existence
Completeness
Rights & Obligations
Valuation and allocation

Question 4

Kiting

Answer 4

overstatement of the cash balance at YE caused by recording the cash receipt, while failing to record the disbursement, assoc with a transfer between cash accounts. The cash is recorded in two cash accounts at YE.

Question 5

What happens with a NSF check returned by bank

Answer 5

The bank will alert the company about NSF checks by sending DEBIT MEMOS

Question 6

Note collected directly by the bank

Answer 6

the bank will alert the company about direct deposits by sending credit memos

Question 7

What assertions do confirming AR balances cover?

Answer 7

rights and obligations and existence.

Question 8

The negative form of confirmation can only be used when four conditions are met:

Answer 8

The risk of MM is low (is the combined assessed level of inherent and control risk)
A large number of small balances is involved.
A very low exception rate is expected
The auditor has no reason to believe that the recipients of the requests are unlikely to give them consideration.

Question 9

If the auditors do not receive replies to second AR confirm requests they should..

Answer 9

inspect the shipping records documenting the merchandise sold to the debtors

Question 10

Tracing bills of lading to sales invoices provides evidence that..

Answer 10

shipments to customers were invoiced

Question 11

Definition of control risk

Answer 11

the risk that a MM will not be prevented or detected on a timely basis by the client’s system of internal control

Question 12

Dont have to confirm A/R

Answer 12

1. overall account balance is immaterial
2. external confirmation procedures would be ineffective
3. assessed level of risk of material misstatement is low and other procedures address that risk

Question 13

What is a related party?

Answer 13

a party that controls or can significantly influence the mgmt or operating policies of another party

Question 14

what are the 3 responsibilities of the auditor when related party tranx have been identifiied?

Answer 14

Obtain an understanding of the business purpose of the related party
Determine if the tranx was authorized by the BOD
Evaluate the adequacy of the disclosures of the related party tranx

Question 15

Why is confirming AP unnecessary?

Answer 15

Bc there is better evidence available to the auditor -looking at cash payments

Question 16

Determination as to whether there are restrictions on retained earnings relate to which assertion?

Answer 16

Presentation and disclosure. Restrictions impact the amount of RE available for dividends and thus require disclosure. (also relates to rights & ob) - whether the entity had the rights to the reported RE

Question 17

What is the purpose of having a stock registrar?

Answer 17

to prevent any overissuance of stock and verified that stock is issued properly.

Question 18

Notional amount

Answer 18

the specific number of units of measurement identified in the financial instrument

Question 19

Derivitive

Answer 19

financial instrument whose value is determined by its relationship to one or more underlyings. They may be used to manage risk thru hedging activities or to take on additional risk thru speculative activities.

Question 20

for derivatives that are designated as a cash flow hedge

Answer 20

only the ineffective portion of the hedge should be reported on the income statement as a gain or loss. Changes in FV for the effective portion of the hedge should be recognized in other comp. earnings.

Question 21

how can a company enhance their segregation of duties related to derivative activities?

Answer 21

Having an independent staff member monitor an entity’s derivative activity

Question 22

Derivatives that are a FV hedge

Answer 22

changes in the MV should be included on the IS as a G/L