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85 Cards in this Set
- Front
- Back
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What revenue analytic will detect unrecorded revenue?
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Compare units shipped with revenue and production and pricing for reasonableness
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What revenue analytic will detect fictitious revenue?
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Compare units shipped with revenue and production and pricing for reasonableness
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What revenue analytic will detect cut-off errors?
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Compare weeks of inventory for each quarter
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What revenue analytic will detect changes in pricing or pricing errors?
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Compare gross profit percentage by product to previous years and industry data
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What A/R, AfDA, or bad debt analytic will detect incorrect A/R valuation?
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Compare receivables turnover and days outstanding to previous years or industry data
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What analytic will detect under- or over-statement of sales returns?
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Compare sales returns as a percentage of revenue to prior years or other industries
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What analytic will detect under- or overstatement of sales discounts
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Compare sales discounts as a percentage of gross revenue to prior years or other industries
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What analytic will detect under- or overstatement of sales commissions?
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Compare recorded commissions to net revenue times average commission rate
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Name 3 things you can do if your receivables confirmations are returned "We do not confirm balances because we are on a voucher system".
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1. Examine subsequent cash receipts
2. Compare balance to invoices and shipping documents 3. Examine vouchers |
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Name the 9 errors on the A/R Confirmation on p396.
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1. Work not initialed and dated
2. Negative confirmations are not necessarily without exception 3. 2 responses unaccounted for 4. No work done on unconfirmed accounts 5. No work done on related party transaction 6. Unexplained tick mark 7. No evidence about what to do with the $12,000 8. Conclusion should be: 12k of 280k was wrong, so applied to 2m, about 86k wrong 9. How were differences resolved? |
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How would you detect lapping?
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1. Test aging of receivables
2. Send confirmations 3. Investigate exceptions 4. Get deposit slips from bank 5. Compare names/dates/amounts on remittance advices with names/dates/amounts in ledger 6. Check authorization of returns and write-offs 7. Surprise inspection of deposits |
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What 2 functions should the purchasing function be separated from?
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Requisitions and receiving
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What function should the invoice-processing function be separated from?
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Accounts payable
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What function should the disbursement function be separated from?
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Accounts payable
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What function should the accounts payable function be separated from?
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General ledger
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What could happen if purchasing is not segregated from requisitions?
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Purchasing could order something for themselves, and pretend its authorized
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What could happen if invoice-processing is not segregated from accounts payable?
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Could process a fictitious invoice to receive cash, or process at the wrong price or terms to result in overpayment.
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What could happen if disbursement is not segregated from accounts payable?
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Could write unauthorized checks to self and create false substantiation.
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What could happen if accounts payable is not segregated from the general ledger?
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Could conceal anything that would normally be detected by reconciling A/P to ledger, such as under- or overstated A/P.
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Go read Table 11-4 on page 410, and come back when you have.
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Ok
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Name an analytical figure that could be used to test accounts payable
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Payables turnover
A/P balance vs. prior year A/P balance Individual A/P vs. prior year individual A/P Purchase returns/Revenue Cost of sales/Revenue |
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What are the 3 categories of expenses?
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1. Product costs - cost of goods sold
2. Period costs - overhead 3. Allocable costs - depreciation |
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What major types of transactions occur in the purchasing process?
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1. Purchase - Asset, A/P, expense
2. Payment - A/P, Cash 3. Returns - Cash, A/P, Asset |
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List the 5 segregations of duties in the purchasing process.
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1. Requisitioning - Purchasing
2. Purchasing - Receiving 3. Invoice-processing - Accounts Payable 4. Accounts payable - Cash disbursement 5. Accounts payable - General ledger |
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List 2 inherent risk factors that affect the purchasing process.
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1. Raw materials fluctuate in price
2. Single vendor |
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What are some substantive procedures to detect accounts payable understatement?
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1. Reconcile monthly statements to payments and balance
2. Confirm with vendors who have a small or zero balance 3. Scan for payments after year-end |
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What the 3 most important disclosures that must be made for accounts payable?
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1. Related-party transactions
2. Losses on purchase commitments 3. Dependence on a single vendor |
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How are A/R and A/P confirmations different?
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1. Expected to detect existence/completeness
2. Mailed at interim/year-end 3. Used more/less frequently 4. Does/does not state the balance owed |
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Which of the following is not usually performed in the accounts payable department?
a. Matching invoices to receiving reports b. Approving vouchers for payment c. Indicating asset and expense accounts d. Accounting for unused prenumbered purchase orders and receiving reports |
D
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What are the 4 segregations of duties in the human resources function?
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1. Supervision and personnel records
2. Supervision and payroll processing 3. Disbursement and everything else 4. Payroll processing and general ledger |
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What are 2 ways the control environment affects the human resources function?
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1. The structure of the company and the assigning of authority
2. Policies relating to employees These make sure the appropriate people have responsibilities, carry them out, and are compensated as agreed |
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List 2 analytical procedures related to the human resources process.
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1. Compare payroll expense to employees and compensation and changes to them
2. Compare payroll/sales to prior years and industry 3. Compare budget to actual payroll 4. Compare commissions to applied commission formulas 5. Compare current balance to previous balance |
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Review Table 12.3 on page 445
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Ok
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What are the 5 segregations of duties in the inventory management process?
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1. Inventory management and cost-accounting
2. Inventory stores and cost-accounting 3. Cost-accounting and general ledger 4. Physical inventory and inventory management 5. Physical inventory and inventory stores |
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Why is it important to keep inventory management and cost accounting separate?
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Inventory manager can over- or understate inventory or net income
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Why is it important to keep inventory stores and cost accounting separate?
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If you can control and account for inventory, you can take it.
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Why is it important to keep cost accounting separate from the general ledger?
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It makes it possible to steal goods by recording the inventory as ***
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Why is it important to keep physical inventory and inventory management separate?
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When inventory is stolen, it can be covered up by changing the purchase requisitions
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Why is it important to keep physical inventory and inventory stores separate?
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When you steal it, you can say it was never there.
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What are the 4 (5 if you count IT) functions of the inventory process?
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1. Inventory management - production schedules and purchase requisitions
2. Raw materials stores - materials requisitions 3. Finished goods stores - send to shipping 4. Cost accounting - updating inventory and cost records with the appropriate categories |
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What are the 4 (5 if you count IT) functions of the purchasing/AP function?
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1. Purchasing - Approves purchase order
2. Receiving - Counts and inspects purchases 3. Accounts payable - matches invoices with supporting documents, determines accounting category, updates records, reconciles voucher register to general ledger 4. Cashier - signs and mails checks |
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What are the 5 (6 if you count IT) functions of the human resource process?
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Operating - initiate wage, hiring, firing, time sheets, and budget
Human resource - approve wage, update personnel and payroll records Timekeeping - Review time data and payroll distribution Payroll - Prepare payroll and calculate taxes Treasurer - Sign checks (IT does most of recording) |
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Remember the difference between testing transactions and testing account balances
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Ok.
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What are the 5 segregations of duties of the property management process? (3 if no count of PPE is done)
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1. Initiation and approval
2. Records and general ledger 3. Records and custody 4. Count and custody 5. Count and records |
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Why is it important to separate records from the general ledger?
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Because anything that would be caught by checking the subsidiary ledger (like changing the values of things), would not be caught
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What is the most likely reason the original copy of an insurance policy isn't available?
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The item being insured is a secured interest on a lien.
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What are the 4 key segregations of duties for investments?
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1. Initiation and approval
2. Valuation-monitoring and acquisition 3. Securities ledger and general ledger 4. Custody and accounting |
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Why is it important to segregate valuation-monitoring and acquisition?
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Securities might be improperly valued or not reported to management if they aren't doing well.
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What should you watch out for on an interbank transfer schedule, and what clue should you try to find?
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Kiting, disbursements and receipts recorded by the books in different periods (it's ok if banks record in different periods)
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If the attorney refuses to respond to a letter of inquiry, what kind of opinion should be issued?
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Scope limitation
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What are the three relevant dates for subsequent event categorization?
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1. Year-end
2. Audit report date 3. Financial statement issuance |
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What should be done about an event between year-end and the audit report date?
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Disclose or adjust, as appropriate
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What should be done about an event between the audit report date and the financial statement issuance?
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Disclose and dual-date if necessary
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Name 3 things an auditor should communicate with those charged with governance
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1. The auditor's responsibility
2. Management's responsibility 3. How the auditor plans to address RMM 4. Approach to IC, including whether an opinion will be issued on it 5. The concept of materiality 6. The extent of use of internal audit work 7. Qualitative aspects of accounting policies, estimates, and disclosures 8. Significant difficulties 9. Disagreements with management 10. Other findings that the auditor believes governance should know 11. Uncorrected nontrivial misstatements 12. Corrected misstatements found by the auditor 13. Representations the auditor requests from management 14. Management's consultations with other accountants |
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Oops! The auditor forgot to send confirmations. What do you do?
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1. Request permission to run the procedure
2. Run the procedure 3. If results cause opinion to change, take measures to disassociate opinion from financial statements |
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You discover fraud after the financial statements were issued. All audit procedures were followed. What do you do? (3 steps)
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1. Notify the client that the auditor's report should no longer be associated with the financial statements
2. Notify regulatory agencies that the report should not be relied on 3. Notify each person known to be relying on the opinion that it should not be relied on |
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PCAOB - How long should you keep audit files?
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45 days after auditor permits client use of auditor's report
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PCAOB - How long should you keep audit documentation?
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7 years after date of engagement completion, or longer if required by law
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PCAOB - How long should you keep documents that form the basis of the audit or review?
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Indefinitely
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What are the 3 steps in evaluating going concern?
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1. Consider whether the results of the audit indicate doubt
2. If there is doubt, obtain evidence of management's plans 3. Determine whether plans are enough to abate doubt |
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Why is it important to get a letter from an attorney about a client?
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It independently (sort-of) corroborates the information provided by management
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In order, what are the 8 elements of an auditor's report on a non-public company?
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1. Title
2. Addressee 3. Introductory paragraph 4. Management's responsibility 5. Auditor's responsibility 6. Scope paragraph 7. Opinion paragraph 8. Auditor firm and date |
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Who is the auditor's report typically addressed to?
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The company itself, the board of directors, the audit committee, and/or shareholders
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What date is put on the auditor's report?
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The date by which all evidence to support the opinion has been gathered
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In order, what are the 7 elements of an auditor's report on a public company?
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1. Title
2. Addressee 3. Introductory paragraph 4. Scope paragraph 5. Opinion paragraph 6. Explanation of ICFR 7. Name and date |
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Which type of company would have section headings?
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Non-public
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The financial statements lack consistency. What type of report should be issued?
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Unqualified with emphasis paragraph
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You audit a parent company, and someone else audited the subsidiary. What type of report should be issued?
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Unqualified with modified wording to refer to "other auditors"
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If you have a scope limitation resulting in a disclaimed opinion, what happens to the scope paragraph?
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Omitted
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What does it take for a GAAP departure to be considered an adverse opinion?
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It must be material and pervasive
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When is something pervasive?
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1. When it affects multiple areas of the financial statements
2. When the account it affects is a significant portion of the financial statements 3. When it is heavily relied-on |
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When do additional paragraphs go before the opinion paragraph?
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When they modify the opinion (i.e. basis for adverse/qualified/disclaimer opinion)
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When do additional paragraphs go after the opinion paragraph?
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When they are for emphasis or explanation, or other matters
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Is it possible to issue a qualified opinion on one statement and an unqualified on others?
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Yes
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You were hired after the inventory count, so you don't have evidence about beginning inventory. Everything else is fine. What do you do?
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Issue a disclaimer on the income statement, but an unqualified opinion on the year-end balance sheet
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You audited the current year financial statements, but someone else audited last year's. The client issues a comparative statement. What should your report say?
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Option 1. Ask predecessor to reissue report with original date
Option 2. Refer to the report of other auditors |
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This year's financial statements are fine, but last year there was a disclaimed opinion. Nothing changed from this year to last year. What kind of report should you issue?
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Disclaimed for last year, unqualified for this year
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This year's financial statements are fine, but last year there was a disclaimed opinion. It was fixed. What kind of report should you issue?
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Updated opinion for last year, unqualified for this year
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When the opinion on prior-year financial statements in a comparative statement changes, what kind of paragraph should be written and where does it go?
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Other matter, after the opinion paragraph
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A change affects comparability but not consistency. How should it be treated?
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Disclosed in the footnotes of the financial statements, not mentioned on the auditor's report
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A change affects comparability and consistency, and is material. How should it be treated?
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Appears in the auditor's report as an explanatory or emphasis paragraph, does not affect opinion
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Other information included with the financial statements is wrong. The client refuses to correct it. What should you do?
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Depending on the severity, you should:
1. Include an explanatory or emphasis paragraph 2. Withhold the report 3. Withdraw from the engagement |
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Name the 3 accounting transactions in the purchasing process
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1. Purchase
2. Payment 3. Returns |
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What type of risk is misstatement detected in previous audits?
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Inherent
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What 2 parties reach an understanding about materiality in pending litigation?
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The auditor and the lawyer
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