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80 Cards in this Set

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  • Back
The statement of transactions occurred for the 7 to 14 consequent days from the closing date of financial statement like Dec 31 provided by banks. This is useful to check the accuracy of checks outstanding and deposits in transit in accounting.
Cutoff Bank Statement
Deposit that a bank can use to offset an unpaid loan. No interest is earned, which is stated as a percentage of the loan. It increases the Effective Interest Rate on the loan.
Compensating Balance
Issue written communication that express a conclusion about the reliability of a written assertion that is the responsibility of another party.
Attest Engagement
Declaration, or set of related declarations, about whether the subject matter is based on, or in conformity with, the selected criteria.
Risk that CPA may unknowingly fail to appropriately modify the attest report on an assertion that is materially misstated.
Attestation Risk
Engagements to report on management's written assertion about the entity's compliance with specific requirements
Compliance Attestation
Written request by the external auditor sent to a party having a financial relationship with the client and asking for a reply only in the case of disagreement. For example, a company may mail a form on behalf of the CPA firm to sampled customers requesting them to notify the auditor only if a discrepancy in the account balance exists.
Negative Confirmation
Written or oral request by the auditor of a party having financial dealings with the client about the accuracy of an item. A response is required whether the particular item is correct or incorrect. A positive confirmation can be sent to customers to verify account balances.
Positive Confirmation
A fraud that may be committed by an employee to conceal a misappropriation of funds, usually funds paid by a customer of the employer.
A fraudulent act involving the alteration or issuance of a check or draft with insufficient funds.
Presentation & Disclosure (CS, RE, EPS)
Review classification & disclosure
Valuation (CS, RE, EPS)
Recompute EPS
Completeness (CS, RE, EPS)
Confirm with stock register: Shares outstanding, Unissued shares, Treasury shares
Review cash/stock dividends, stock splits: Authorization, details, GAAP
Trace to B of D minutes
Review Treasury stock accounting
Existence/Occurrence (CS, RE, EPS)
Foot, crossfoot, trace SE to GL
What are the exceptions for personal loans?
1) Automobile loans
2) Loans fully collateralized by cash deposits at same financial institution
3) Unpaid credit card balances not exceeding $10,000
4) Insurance policy loans fully collateralized by policy surrender value
5) Home mortgages, fully collateralized secured loans, and immaterial loans that are grandfathered in.
What immediate family is covered?
1) Spouse
2) Spousal equivalent
3)Dependent--whether or not related
Existence/Occurrence (CS, RE, EPS)
Foot, crossfoot, trace SE to GL
Presentation & Disclosure (Financing)
Review classification & disclosure
Valuation (Financing)
Recalculate interest, premium, discount
Completeness (Financing)
Confirm balances & interest payments directly with trustees & creditors
Obligation (Financing)
Obtain bond & long-term agreement
Trace to B of D minutes
Review covenants
Existence/Occurrence (Financing)
Trace subsidiary to GL
Inspect ones on hand
Confirm balances
Presentation & Disclosure (Inventory)
Review Classification & disclosure
Completeness (Inventory)
Test cutoff
Valuation (Inventory)
Vouch cost, determine market
Review GAAP
Rights (Investment)
Inspect & Count ones on hand
Trace subsidiary to general ledger
Trace revenue to cash receipts
Existence (Investment)
Confirm with trustees
Independence is impaired if close relative:
1) In a key position with client
2) Has a material financial interest in client and is known to the covered member.
3) Can exercise significant influence over the client.
What is considered close relative?
Parent, sibling, and nondependent child
Presentation & Disclosure (PPP)
Review classification & disclosure
Completeness (PPP)
Test cutoff
Allocation (PPP)
Recompute depreciation expense
Existence/Occurrence, Rights (PPP)
Test additional & Disposals
1. Vouch
2. Observe
Valuation (PPP)
Verify accuracy of recorded assets
London Interbank Offer Rate
Presentation & Disclosure (Expenditure & Disbursement)
Review classification & disclosure
Valuation (Expenditure & Disbursement)
Aging of accounts payable
When does the period of the professional engagement begin?
Earliest of either
1) Signs initial engagement letter
2) Begins to perform attest engagement
Completeness (Expenditure & Disbursement)
Test cutoff
Search for unrecorded liabilities*-- look thru cash payments after year-end for items to accrue
Independence not impaired solely if
1) If family of covered member is in non-key position of client.
2) If family participates in retirement, savingsm or compensation plan of client if plan is offered to all similar employees
Existence, Obligation (Expenditure & Disbursement)
Vouch expenditures
Confirm accounts payable
Presentation & Disclosure (Inventory)
Review classification & disclosure
What is a key position?
Primary responsibility for significant accounting functions and preparation of F/S.
Valuation (Inventory)
Review pricing, extension for (LIFO, FIFO...) and lower cost/market
Determine obsolete inventory
Completeness, Rights (Inventory)
Test cutoff (coordinate with sales cutoff)
Existence (Inventory)
Observe inventory
Take test counts
Presentation & Disclosure (Revenue)
Review classification & disclosure
What is the 2-year AICPA rule?
In order for report or opinion to be given, client must owe less than 2 years worth of audit payments.
Completeness (Revenue)
Test cutoff of sales
Valuation (Revenue)
Aging schedule
Review allowance account
Existence, Rights (Revenue)
Confirm year-end balances
Independence only applies to
1) Covered members and their immediate family
2) Participants on attest team
3) Those who directly supervise/manage attest engagement partner
4) Those who consult with attest team on technical or industry-related issues specific to engagement
What kind of service is bookkeeping?
A non-attest service.
Entry to adjust books of convenience to F/S basis of accounting and to initially record and accounting transaction or event.
Bookkeeping Entry
Entry to correct for a mistake made by entities whether caused by error or fraud.
Misstatement Entry
Presentation & Disclosures (Cash)
Review classification & disclosure
Completeness (Cash)
Test cutoff with cutoff bank statement
Schedule of Inter-bank Transfers
Valuation (Cash)
Verify mathematical accuracy of bank reconciliation
Existence, Rights (Cash)
Confirm year-end balances
Are mutual funds indirect or direct in regards to independence?
You cannot accept a gift over how many dollars?
$25 gift
If during an audit you generate a _______ ________, you are performing a nonattest service.
Bookkeeping Entry
How much does income have to be reported in order for IRS to assume fraud?
Underreported by > 20%
What are the 3 exceptions to keeping confidential information?
1) Subpoena
2) Peer review
3) Ethics investigation
Is it ethical to charge contingent fees on a nonattest client?
Yes, but not if the contingent fees are for a tax return.
This is looking for errors in internal control.
Attribute Sampling
Maximum rate of internal control deviation that you can accept without altering planned reliance on internal control.
Tolerable Rate
Accept/Reject: If upper limit is less than or equal to tolerable rate of errors.
Accept, no change in substantive tests.
Accept/Reject: If upper limit is greater than or equal to tolerable rate of errors.
Reject, increase substantive testing.
What is substantive testing?
Dollar amount testing
What is risk of incorrect acceptance?
Beta risk
What is risk of incorrect rejection?
Alpha risk
What is sample interval?
Tolerable Error (Adjusted) / Reliability Factor
What is sample size?
Book value of AR / Sample Interval
How do you compute the upper limit?
Tolerable Error (Adjusted)
+ Projected Error
+ Incremental Allowance
If book value is less than the sample interval, then compute
1) Compute tainting % [(BV - AM) / BV]
2) Ranked projected error
3) Incremental allowance for sampling risk (Ranked projected error * Increment reliability factor)
Uses legal precedent to identify the fault and responsibility of parties where there is no violation of a written law or statute.
Common Law
Based on laws passed by legislative bodies and comiled in federal, state, and municipal codes. Primary basis for a decision is whether the party's actions have violated the law as written in the code.
Statutory Law
Not performing with the degree of knowledge, skill, and judgment used by others in the profession.
What is RICO?
Racketeer Influenced & Corrupt Organization