You can Account on me Flashcards
Confirmation is what kind of assertion
Existence
Bill and Hold transaction
a sale prior to delivery of the goods. Sales may be inappropriately recorded
What are the 4 assertions for acct balances at the end of the period
Existence
Completeness
Rights & Obligations
Valuation and allocation
Kiting
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.
What happens with a NSF check returned by bank
The bank will alert the company about NSF checks by sending DEBIT MEMOS
Note collected directly by the bank
the bank will alert the company about direct deposits by sending credit memos
What assertions do confirming AR balances cover?
rights and obligations and existence.
The negative form of confirmation can only be used when four conditions are met:
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.
If the auditors do not receive replies to second AR confirm requests they should..
inspect the shipping records documenting the merchandise sold to the debtors
Tracing bills of lading to sales invoices provides evidence that..
shipments to customers were invoiced
Definition of control risk
the risk that a MM will not be prevented or detected on a timely basis by the client’s system of internal control
Dont have to confirm A/R
- overall account balance is immaterial
- external confirmation procedures would be ineffective
- assessed level of risk of material misstatement is low and other procedures address that risk
What is a related party?
a party that controls or can significantly influence the mgmt or operating policies of another party
what are the 3 responsibilities of the auditor when related party tranx have been identifiied?
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
Why is confirming AP unnecessary?
Bc there is better evidence available to the auditor -looking at cash payments