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27 Cards in this Set
- Front
- Back
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How do you decide on the appropriate evidence to be obtained from tests of details of balances
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On an objective by objective basis
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What are the 8 general objectives (are the same for all accounts)
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Detail tie-in
Existence completeness Accuracy Classification Cutoff Realizable Value Rights |
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What account is typically one of the most material accounts in the financial statements for companies that sell on credit
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Accounts receivable
(Transactions in the sales and collection cycle that affect A/R are almost certain to be highly efficient |
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When are analytical procedures required
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Required during during planning and as a part of completing the audit but are often done during all three phases
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When are most analytical procedures performed
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After the balance sheet date but before the tests of details of balances
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What does SAS 67 indicate
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Auditors must normally identify a specific fraud risk for revenue recognition
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What three aspects of internal control are auditors mostly concerned about
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Controls that prevent or detect embezzlements
Controls over cutoff Controls related to the allowance for uncollectible accounts |
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what is the physical starting point for performing tests of the year end balances in account receivable
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Aged trial balance for A/R
Because it breaks down each balance by the time outstanding |
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Auditing standards require confirmation of A/R.....what are the three exceptions
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1)A/R are immaterial
2)Auditor considers confirmations ineffective evidence because response rates will likely be inadequate or unreliable 3)The combined level of inherent risk and control risk is low and other substantive evidence can be accumulated to provide sufficient evidence |
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What is the most important test of details of A/R
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Confirmation of A/R
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Why do auditors usually test the information on the aged trial balance
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For detail-tie-in objective and to verify that the population being tested agrees with the general ledger and A/R master file
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It is hard for auditors to test for omitted account balances, so what do they rely on
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The self-balancing nature of the A/R master file
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What is the best way to uncover an understatement of sales and accounts receivable
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substantive tests of transactions for shipments made but not recorded (completeness objective)
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When do cutof misstatements exist
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When current period transactions are recorded in the subsequent period or vice versa
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What is the threefold approach to determine the reasonableness of cutoff
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1) Decide on the appropriate criteria for cutoff
2) Evaluate whether the client has established adequate procedures to ensure a reasonable cutoff 3) Test whether the cutoff was correct |
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What is the most important part of evaluating the clients method of obtaining a reliable cutoff
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Determine the procedures in use
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What is the primary purpose of accounts receivable confirmation
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To satisfy the existence, accuracy and cutoff objectives
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Postitive Confirmation
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communication addressed to the debtor requesting the recipient to confirm directly whether the balance as stated on the confirmation request is correct or incorrect
(more reliable evidence) |
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Other types of positive confirmation
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Invoice confirmation- an individual invoice is confirmed rather than entire account
Blank Confirmation- does not state amount but requests the recipient to fill in the balance |
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Negative confirmation
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Addressed to the debtor but requests a response only when the debtor disagrees with the stated amount
(less expensive) |
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When is it acceptable to use negative confirmations
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1) A/R is made up of a large number of small accounts
2) Combined assessed control risk and inherent risk is low 3) there is no reason to believe that the recipients of the confirmations are unlikely to give them consideration (all 3 circumstances must be present) |
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When are negative confirmations often used in audits
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Audits for hospitals, retail stores, banks and other industries in which the recievables are due from the general public
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When is the most reliable evidence from confirmations obtained
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When they are sent as close to the balance sheet date as possible
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What are some alternative procedures for non-responses
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1) Subsequent cash receipts
2) Duplicate sales invoices 3) Shipping documents 4) Correspondence with client |
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After the items for confirmation have been selected, how long must the auditor maintain control
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Until the confirmations are returned from the customer
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What is the most likely types of reported differences
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Price charged for goods
Goods are damaged Proper quantity of goods was not received |
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What is the final decision about A/R and sales
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Whether sufficient evidence has been obtained
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