Audit Set 4

Front 1

Revenue Cycle - Credit Department

Back 1

Authority and Valuation

Front 2

Two documents prepared by the mailroom (Collections)

Back 2

1. Remittance advice (sent to A/R dept)
2. Prelisting of checks (sent to Accounting, Cashier, and A/R)

Front 3

Accounts Payable Department - 3 functions

Back 3

1. Record the payable
2. Approve the invoice for payment
3. Record the payment after it is paid by the treasurer

Front 4

Lock Box System

Back 4

Internal control against lapping - customers send their payments directly to the bank

Front 5

How to detect kiting

Back 5

Bank transfer schedule - compare the date checks are drawn (on disbursing bank account) to the date checks are deposited (in receiving bank account)

Front 6

Obtain audit evidence supporting the effective operation of controls

Back 6

In order to obtain audit evidence supporting the effective operation of controls, an auditor must obtain evidence regarding how controls were applied, the consistency with which controls were applied, and by whom or by what means controls were applied

Front 7

Accounts Payable Functions

Back 7

1. Receive vendors invoice
2. Match vendor's invoice, RR, PO, requisition
3. Check math
4. Prepare prenumbered voucher
5. Data entry for purchase journal, A/P file, daily purchase summary

Front 8

Audit Doc - Requirements

Back 8

Demonstrate compliance with the standards of fieldwork by showing work was adequately planned and supervised, sufficient understanding of entity was obtained, and sufficient evidence was obtained for opinion
- Indicate acct records = FS

Front 9

Audit Doc - Retention

Back 9

- Report release date is the date when the auditor grants the client permission to use the report
- Required to retain docs for at least five years from that date for private and seven years for public

Front 10

Significant Audit Findings

Back 10

Audit documentation should include significant audit findings, action taken, and conclusions reached:
1. Related to selection and application of acct. principles
2. Possible material misstatements
3. Suggest need to revise audit's previous risk assessment
4. Cause significant difficulty in applying necessary audit procedures
5. May result in modification of auditor's standard report

Front 11

Audit Documentation Can be Given to

Back 11

1. Part of voluntary quality review program for AICPA
2. Subpoenaed by a court
3. Part of official investigation
4. Your defense team (lawyers, insurance, expert witness)

Front 12

Types of Audit Evidence

Back 12

1. Underlying accounting records
2. Corroborating evidence (minutes of meetings, confirmations, industry analysts reports, data about competitors, and information obtained through observation, inquiry, and inspection)
3. Evidence in electronic form

Front 13

Third Standard of Fieldwork - Evidence

Back 13

1. Reasonable basis for an opinion (ending balance is fairly presented, persuasive evidence)
2. Sufficiency of audit evidence
3. Appropriateness of audit evidence (reliable and relevant)

Front 14

Reliability of Evidence

Back 14

1. Auditors direct personal knowledge
2. External evidence
3. Importance of effective controls
4. Documentary evidence (better than oral and want originals)
5. Consistency of evidence
6. Information produced by client

Front 15

Substantive Procedures

Back 15

- Used to evaluate management assertions and detect MM
1. Test of details - can be test performed on ending balances, the details of transactions (few transactions during the year), or a combination
2. Analytical Procedures (not required)

Front 16

Analytical Procedures used as Substantive Tests

Back 16

- Most effective and efficient for assertions in which potential misstatements are not apparent from an examination of detailed evidence
- Documentation requirements (if principal ST): auditor's expectation, factors considered, results, additional procedures performed and their results

Front 17

Standard Auditing Procedures (Risk assessment, test of controls, substantive tests)
FIVE CARROTS

Back 17

F - footing, crossfooting, recalcluation
I - Inquiry
V - Vouching
E - Examination/Inspection (existence assertion)
C - Confirmation
A - Analytical Procedures
R - Reperformance
R - Reconciliation (existence and valuation)
O - Observation
T - Tracing
S - Subsequent events review
Others - cutoff review, audit related accts simulataneously, management rep letter, read information

Front 18

Confirmation - Assertions

Back 18

- Existence
- Rights/Obligations

Front 19

LT Investments - Control Risk

Back 19

Proper controls:
1. Proper authorization and approval
2. Reconciliations to ensure accuracy
3. Continuous monitoring and review

Front 20

Payroll - Segregation of Duties

Back 20

1. Authorization to employ and pay (HR)
2. Supervision - pay base data approved by immediate supervisor - authorization
3. Timekeeping and cost accounting (accumulate independent data, department supervisors should review time clock cards or time sheets) - record keeping
4. Payroll check preparation by payroll department - recordkeeping
5. Check distribution by treasury (signs and distributes) - custody

Front 21

Payroll - Control Procedures
PAID TIPS

Back 21

P - prenumbering
A - authorization
I - independent check to maintain asset accountability (calculation of payroll amounts, account classification, voucher for amount of payroll, bank reconciliation of imprest account, follow up on unclaimed payroll checks)
D - documentation (time records, payroll register)
T - timely and appropriate performance reviews
I - information processing controls
P - physical controls for safeguarding assets
S - segregation of duties

Front 22

PPE - Misc IC

Back 22

- Special req. form is used, tied to capital budget and approved by BOD
- Identification plates
- Retirement through sequentially numbered work order

Front 23

Contingency Procedures

Back 23

1. Review bank confirms for hidden loans, guarantees, etc.
2. Discuss long term purchase commitments
3. Review LT leases
4. Review open tax returns
5. Inquiry with attorney
6. Discuss sales contracts with sales manager
7. Review interim FS after ye
8. Review minutes
9. Client rep letter

Front 24

Confirmation with 3rd party - securities

Back 24

A confirmation from an outside agent indicating that securities are being held in the client's name provides evidence with respect to both the existence assertion and the rights and obligations assertion.

Front 25

Inventory Tracing and Completeness

Back 25

Existence - Vouch from the client physical inventory report list to the CPA test counts and the pre # inventory tags
Completeness - Trace from the CPA test counts and pre # tags to the client phsyical inventory report/list

Front 26

Related Party Transactions

Back 26

- Valuation and Accuracy
1. Determine the existence of related parties (evaluate company procedures, inquire with management, review filings with SEC, review material transactions)
2. Identify and Examine Related Party Transactions - compensating balance arrangements, loan guarantees, unusual nonrecurring transactions near ye
3. Evaluating FS disclosure

Front 27

Auditor Responsibility with Estimates

Back 27

1. Assess management's written policies and practices regarding estimates
2. Verify material estimates have been developed
3. Determine that accounting estimates are reasonable
4. Ensure properly presented and disclosed with GAAP

Front 28

Fair Value Auditor Requirements

Back 28

Assess risk of MM with regard to FV
Evaluate the sufficiency, competency, and consistency of evidence obtained with respect to FV measurements and disclosures
Do management's significant assumptions provide a reasonable basis for FV measurement?

Front 29

Letter of Inquiry to Client's Attorney

Back 29

- Management details any pending or threatened litigation matters, signed by client and sent by auditors
- Lawyers response should include a professional opinion on the expected outcome of any lawsuit and the likely outcome of any liability including court costs
(Management is still primary source of information)

Front 30

Evaluating the Reasonableness of an Estimate

Back 30

In evaluating the reasonableness of an estimate, an auditor would normally concentrate on key factors and assumptions that are (1) significant to the accounting estimate, (2) sensitive to variations, (3) deviations from historical patterns, or (4) subjective and susceptible to misstatements and bias.