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21 Cards in this Set

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What is the methodology for designing tests of controls and substantive tests of transactions for sales?
(1) Understand internal controls - sales, (2) Assess planned control risk - sales, (3) Determine extent of testing controls, (4) Design tests of controls and substantive tests of transactions for sales to meet transaction-related audit objectives. (These will include using the right audit procedures, sample size, selection of items to be tested, and timing of tests.)
What are the sales transaction-related audit objectives?
(1)Recorded sales are for shipments actually made to nonfictious customers. (existence) (2) Existing sales transactions are recorded (completeness). (3) Recorded sales are for the amount of goods shipped and are correctly billed and recorded (accuracy). (4) Sales transactions are properly classified (classification). (5) Sales are recorded on the correct dates (timing). (6) Sales transactions are properly included in the A/R master file and are correctly summarized (posting and summarization).
What are the key controls and audit procedures for the Existence transaction-related audit objective related to sales?
Key Controls - Credit is automatically approved by computer program, sales are supported by authorized documents, batch totals of quantities shipped are compared with quantities billed, monthly statements are sent to customers.
Audit Procedures (Tests of Controls) - Examine customer order for evidence of customer approval, examine sales invoice for supporting bill of lading and customer order, examine file of batch totals for initials of data control clerk, observe if statements are sent.
What are the key controls and audit procedures for the Completeness transaction-related audit objective related to sales?
Key Controls - Shipping documents are prenumbered and accounted for weekly, batch totals of quantities shipped are compared with quantities billed.
Audit Procedures - Account for sequence of shipping documents, examine file or batch totals for initials of data control clerk.
What are the key controls and audit procedures for the Accuracy transaction-related audit objective related to sales?
Key Controls - supported by authorized documents, quantities shipped and billed match, selling prices are taken from an approved list, monthly statements.
Audit Procedures - examine invoice for supporting documents, examine file of batch totals for initials, examine approved price list for accuracy and proper authorization, observe statements being sent.
What are the key controls and audit procedures for the Classification transaction-related audit objective related to sales?
Key Controls - Account classifications are internally verified.
Audit Procedures - Examine document package for internal verification.
What are the key controls and audit procedures for the Timing transaction-related audit objective related to sales?
Key Controls - Shipping documents are prenumbered and accounted for weekly by accountant.
Audit Procedures - Account for a sequence of shipping documents.
What are the key controls and audit procedures for the Posting and Summarization transaction-related audit objective related to sales?
Key Controls - computer automatically posts transactions to the A/R master file and general ledger, A/R master file is reconciled to the general ledger on a monthly basis, monthly statements.
Audit Procedures - examine evidence that A/R master file is reconciled to the general ledger and that monthly statements are sent.
What are the key controls and audit procedures for the Existence transaction-related audit objective related to cash receipts?
Key Controls - accountant independently reconciles bank account, batch totals of cash receipts are compared with computer summary reports.
Audit Procedures - Observe bank reconciliation being done, examine file of batch for proper initials.
What are the key controls and audit procedures for the Completeness transaction-related audit objective related to cash receipts?
Key Controls - prelisting of cash receipts is prepared, checks are restrictively endorsed, batch totals are compared with computer summary, monthly statements to customers.
Audit Procedures - observe prelisting of cash, endorsement of checks, examine file of batch totals for initials, observe monthly statements being sent.
What are the key controls and audit procedures for the Accuracy transaction-related audit objective related to cash receipts?
Key Controls - accountant independently reconciles bank account, batch totals are compared with computer summary, monthly statements.
Audit Procedures - observe accountant reconciling bank acounts, examine file of batch for proper initials, and observe monthly statements being sent.
What are the key controls and audit procedures for the Classification transaction-related audit objective related to cash receipts?
Key Controls - cash receipts transactions are internally verified.
Audit Procedures - examine evidence on internal verification.
What are the key controls and audit procedures for the Timing transaction-related audit objective related to cash receipts?
Key Controls - procedures require recording of cash on a daily basis.
Audit Procedures - observe unrecorded cash at a point in time.
What are the key controls and audit procedures for the Posting and Summarization transaction-related audit objective related to cash receipts?
Key Controls - monthly statements are sent, computer automatically posts transactions to the A/R master file and ledger, A/R master file is reconciled to the general ledger on a monthly basis.
Audit Procedures - observe monthly statements being sent, examine evidence that A/R master file is reconciled to general ledger.
What are the business functions for the sales and collection cycle?
The key activities that an organization must complete to execute and record business transactions for sales, cash reciepts, sales returns and allowances, charge-off of uncollectible accounts, and bad debt expense.
What are the classes of transactions in the sales and collection cycle?
Sales, cash receipts, sales returns and allowances, charge-off of uncollectible accounts, an bad debt expense.
What is a design format audit program?
The audit procedures resulting from the auditor's decisions about the appropriate audit procedures for each audit objective; this audit program is used to prepare a performance audit program.
What is the lapping of A/R?
The postponement of entries for the collection of receivables to conceal an existing cash shortage.
What is a performance audit program?
The audit procedures for a class of transactions organized in the format in which they will be performed; this audit program is prepared from a design format audit program.
What is proof of cash receipts?
An audit procedure to test whether all recorded cash receipts have been deposited in the bank account by reconciling the total cash receipts recorded in the cash receipts journal for a given period with the actual deposits made to the bank.
What is the sales and collection cycle?
Involves the decisions and processes necessary for the transfer of the ownership of goods and services to customers after they are made available for sale; it begins with a request by a customer and ends with the conversion of material and service into an account receivable, and ultimately cash.