You can Account on me Flashcards

1
Q

Confirmation is what kind of assertion

A

Existence

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2
Q

Bill and Hold transaction

A

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

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3
Q

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

A

Existence
Completeness
Rights & Obligations
Valuation and allocation

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4
Q

Kiting

A

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.

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5
Q

What happens with a NSF check returned by bank

A

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

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6
Q

Note collected directly by the bank

A

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

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7
Q

What assertions do confirming AR balances cover?

A

rights and obligations and existence.

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8
Q

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

A

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.

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9
Q

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

A

inspect the shipping records documenting the merchandise sold to the debtors

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10
Q

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

A

shipments to customers were invoiced

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11
Q

Definition of control risk

A

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

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12
Q

Dont have to confirm A/R

A
  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
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13
Q

What is a related party?

A

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

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14
Q

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

A

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

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15
Q

Why is confirming AP unnecessary?

A

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

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16
Q

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

A

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

17
Q

What is the purpose of having a stock registrar?

A

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

18
Q

Notional amount

A

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

19
Q

Derivitive

A

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.

20
Q

for derivatives that are designated as a cash flow hedge

A

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.

21
Q

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

A

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

22
Q

Derivatives that are a FV hedge

A

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