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67 Cards in this Set
- Front
- Back
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what are the 7 main Transaction Cycles? |
1. Revenue 2. Expenditure 3. Inventory 4. Investments 5. PPE 6. Payroll/personnel 7. Financing |
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required SOD for the Revenue Cycle - Sales |
-prep of sales order -credit approval -shipment -billing -accounting |
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required SOD for Revenue Cycle - Accts Rec |
-Sales -Collection of cash receipts -uncollectible receivables -sales returns -sales discounts |
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required SOD for Revenue Cycle - Cash Receipts |
-incoming mail must be opened by a person who does not have access to AR ledger -AR dept should match the details from the bank deposit ticket with the details from the remittance advices |
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Revenue Cycle Substantive Procedures - focus |
Existence is more relevant than completeness |
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Revenue Cycle Substantive Procedures - Auditing AR (how to test for assertions) |
completeness: trace aged trial balance of AR to G/L control account valuation: confirmations; test allowance for uncollectibles revenues: review bank confirmations and debt agreements for liens on receivables |
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Revenue Cycle Substantive Procedures - Auditing Sales Transactions (how to test for assertions) |
completeness: trace sample of shipping documents to sales invoices and to sales journal and AR receivable ledger cutoff: most often used substantive procedure valuation: compare prices and terms on a sample of invoices with authorized price lists and terms of trade existence: vouch sample of sales transactions from sales journal to sales invoice back to the customer order and shipping documents |
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Revenue Cycle - required disclosures |
-revenue recognition methods -revenue by reportable segment -related party revenues and receivables -receivables by type and term -pledged or discounted receivables |
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Expenditure Cycle - Purchases - required SOD |
Purchase Requisition: department in need of asset or services sends a properly approved and numbered requisition Purchase Orders Receipt of goods or services: copy of purchase order sent to the receiving dept serves as an authorization to accept the goods when they arrive |
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Expenditure Cycle - Cash Disbursements - required SOD |
-approved voucher packets prepared by the accounting department -received by treasurer to prepare/sign/mail checks & cancel supporting documents |
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what assertions are most relevant for AP Substantive Procedures? |
COMPLETENESS and ACCURACY are more relevant than existence & rights/obligations assertions |
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AP Substantive Procedures - Completeness procedures |
-agree AP listing to G/L -obtain sample of vendor statements and agree to vendor accounts -search for unrecorded liabilities |
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AP Substantive Procedures - Valuation procedures |
-obtain AP listing, foot listing, agree listing to G/L -obtain sample of vendor statements and agree amounts to vendor accounts -review results of AP confirmations |
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AP Substantive Procedures - Existence/Occurrence procedures |
vouch selected amounts from AP listing to voucher packages |
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describe AP confirmations |
-select vendors with small or zero balances -test completeness and existence -positive and generally blank |
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Purchasing Substantive Procedures |
Valuation: recompute mathematical accuracy of vendor invoices Existence: test a sample of vouchers for authorization and the presence of receiving report |
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Required Expenditures disclosures |
-payables by type and term -purchase contracts and purchase commitments -related party purchases and payables -expenses by segment -determine whether material LT payables or nontrade receivables require separate disclosure |
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describe Lapping |
withholding and not recording current receipts of cash or checks -unrecorded receipt is covered by applying a subsequent receipt to the previously unrecorded account |
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how to Prevent/Detect Lapping? |
independent comparison of recorded cash receipts with funds actually deposited; use of lock-box system |
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describe Kiting |
check drawn on one bank is deposited in another bank and no record is made of the disbursement in the balance of the first bank -used to cover a cash shortage or pad cash position |
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how to Prevent/Detect Kiting? |
compare the dates checks are drawn to dates of deposit -when date stamped by receiving bank is before when disbursement is recorded |
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good internal control for cash includes the use of... |
a voucher system for cash disbursements |
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Ending Cash Balance - procedures focus on... |
Existence, Completion and Valuation |
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Ending Cash Balance - Substantive Procedures |
-footing bank rec and list of outstanding checks -agreeing the balance per the books to the G/L -agreeing the balance per the bank confirmation to the balance per the bank -agreeing deposits in transit and outstanding checks to the cutoff bank statement |
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Auditing Cash Receipts and Cash Disbursements - Completeness Assertion |
Receipts: trace sample of remittance advises to the cash receipts journal and deposit slips Disbursements: trace sample of cancelled checks to cash disbursement journal |
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Auditing Cash Receipts and Cash Disbursements - Valuation Assertion |
Receipts: sample of daily deposits, foot remittance advises and entries on deposit slip and agree to the cash receipts journal and bank statement Disbursements: sample of voucher packages, agree purchase order, receiving report, invoice, cancelled check and disbursement journal |
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Auditing Cash Receipts and Cash Disbursements - Existence Assertion |
Receipts: vouch a sample of entries in cash receipts journal to remittance advises, deposit slips and bank statement Disbursements: vouch sample of entries from the cash disbursements journal to cancelled checks, voucher package and bank statement |
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Cash - Required Disclosures |
-policy defining cash and cash equivalents -restrictions on cash, including sinking fund requirements -compensating balance requirements |
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Inventory Cycle - 4 required SOD |
1. purchasing 2. receiving 3. warehouse 4. shipping |
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Auditing Ending Inventory Balance - procedures |
observation of beginning and ending physical inventory counts is a required procedure -inspecting inventory to ascertain existence and condition -performing test counts -evaluating management's instructions and procedures for inventory count -observing the performance of management's count procedures |
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Audit of Inventory - Presentation and Disclosures |
-cost method and valuation methods used -raw materials, WIP, and finished goods inventory balances -consigned inventory -pledged or assigned inventory -significant losses from inventory write-downs or purchase commitments -warranty obligations |
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Investment Cycle - 3 required SOD |
1. authorization of purchase or sale 2. custodian 3. maintain detailed record of investments |
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what are Analytical Investment Substantive Procedures used for? |
used to test the reasonableness of related gains and losses and investment income |
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audit of Ending Investment Balances - tests for valuation |
-obtain and foot a listing of investments by category -obtain evidence corroborating the quoted year-end fair value -recalculate the ending values of investments not reported at fair value -determine whether there has been any permanent impairment in value -assess reasonableness and appropriateness of assumptions, market variables, and valuation models -decline in fair value |
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audit of Ending Investment Balances - tests for existence |
-confirmation from custodian -examination of securities on hand |
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Auditing Investment Balances - types of investments |
-Marketable Securities -Equity Method Investment -Derivatives |
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Marketable Securities are carried at... |
fair value (trading and A4S securities) |
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Equity Method Investments are verified by... |
inquiry of management |
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for Derivatives, entity must.. |
demonstrate and disclose a number of transaction features, including risk exposure |
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procedures for auditing investments in securities when valuations are based on the investee's financial results |
-obtain and read the FS and audit report of investee -request that entity arrange with investee to have FS audited -obtain sufficient appropriate audit evidence of carrying amount of investment -consider if there is a lack of comparability |
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procedures for auditing investments in derivatives and securities measured or disclosed at fair value |
-determine whether the applicable financial reporting framework specifies the method to be used to determine fair value -evaluate whether the determination of fair value is consistent with the specified valuation method -if the fair value estimate is obtained from broker-dealers or other third-party sources, obtain an understanding of the method used to develop their fair value estimate |
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PPE substantive procedures - Valuation |
recalculate accumulated depreciation from reasonableness -evaluate fixed assets for impairment -if entity uses IFRS, auditor should verify the reasonableness of any fixed asset revaluations |
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PPE substantive procedures - Existence |
vouch additions by examining internal documents, invoices and inspection -testing for unrecorded retirements |
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PPE transaction Presentation and Disclosure requirements |
-depreciation methods and useful lives -depreciation expense for the period -balance of each class of capital assets by nature or function -accumulated depreciation allowances by class or in total -liens and mortgages -capital and operating lease information |
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Payroll and Personnel Cycle - SOD |
-authorization to employ and pay -supervision by immediate supervisor -timekeeping and cost accounting -payroll check preparation -check distribution |
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payroll department is what kind of department? |
record keeping department, NOT a custodial department |
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Payroll and Personnel evaluation procedures |
-observe SOD between HR and payroll distribution -compare personnel record for each department with the actual time cards and the employees actually working in each dept -observe payroll distribution -observe use of time clocks -investigate when time cards aren't used -test transfers and underlying employee authorizations if direct deposit is used -test general and app controls to ensure that payroll transactions are valid, authorized and recorded |
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when IC over payroll is effective, auditor focuses on... |
substantive procedures on analytical procedures and the recalculation of payroll accruals (valuation) |
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when IC over payroll is ineffective, auditor focuses on... |
completeness, existence and rights/obligations |
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Payroll Auditing Presentation and Disclosure |
-pension and post-retirement benefit disclosures -stock-based compensation disclosures -deferred compensation and profit-sharing plans |
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financing cycle includes... |
entity's debt and equity |
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IC over debt should include... |
-adequate documentation of all financing agreements -authorization of new debt financing by the board of directors or management -detailed records of LT debt, including interest and principal payments, and the amortization of bond premiums and discounts |
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IC over equity should include... |
all stock issuances, dividend declarations and treasury stock purchases must be authorized by BOD |
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if a stock transfer agent is NOT used, what controls should be implemented? |
-officer should be responsible for ensuring that stock transactions are compliant; should also maintain certificate book -this officer should have no accounting responsibilities -periodic independent reconciliation of stock certificate book with shares outstanding |
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Ending Debt Balance - Completeness Substantive Procedures |
obtain a listing of all debt and agree the total to the G/L -debt disclosed on the standard bank confirmation should be traced to the debt agreements and FS -notes and bonds should be confirmed directly with creditors -inquire of management regarding new debt and off-BS transactions |
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Ending Debt Balance - Valuation Substantive Procedures |
recompute any interest payable and recompute the amortization of premiums or discounts |
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Ending Debt Balance - Existence Substantive Procedures |
confirm notes or bonds directly with creditors |
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Debt Transactions - Tests of Details on Completeness |
examine new debt agreements and the board minutes for evidence of new agreements -review interest expense for payments to debt holders not included in the debt listing -examine lease agreements for proper classification as operating or capital |
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Debt Transactions - Tests of Details on Valuation |
test a sample of debt receipts and payments and should compare interest expense to the debt balance for reasonableness |
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Debt Transactions - Tests of Details on Existence |
reviewing board minutes |
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Debt Transactions - Tests of Details Understandability |
determine whether debt is properly classified as ST or LT |
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Debt Auditing Presentation and Disclosure Requirements |
-details of maturity dates, interest rates, call and conversion privileges, and assets pledged as collateral -future sinking fund payments and maturities for each of the next five years -restrictive loan covenants |
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substantive procedures related to Stockholders' Equity and Treasury Stock are primarily concerned with... |
completeness, valuation, existence/occurrence |
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Stockholders' Equity and Treasury Stock - third-party confirmations should be used... |
-if client doesn't use a stock transfer agent -primary source of evidence of completeness is the stock certificate book -examine all shares of treasury stock and agree the total to the G/L |
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Required Stockholders' Equity and Treasury Stock Disclosures |
-number of shares authorized, issued and outstanding -rights & privileges of securities, participation rights, call prices and dates, conversion or exercise prices or rates, sinking fund requirements -stock option plans -appropriations of retained earnings and restrictions on dividends |
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Valuation procedures regarding stock transactions |
-analyze the retained earnings account -review the propriety of any direct entries to retained earnings |
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Existence procedures regarding stock transactions |
vouching transactions recorded during the current period to board minutes -confirm with transfer agent and inspect stock certificate book |
