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45 Cards in this Set
- Front
- Back
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Review the PF to make sure we have the terms of the debt in the file: |
Issue date Principal amount borrowed interest rate Repayment terms dates collateral (if any) Amotization schedule |
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If debt is issued during year |
-trace the recorded amount to the supporting documents -auditor may also confirm the terms of the issue with the underwriter (bonds) or the lender (notes) |
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If principal repayments are made during the year |
-the auditor should agree the recorded entries to the supporting repayment schedules -auditor may also trace (a sample) of repayments to the cash disbursements journal (if internal controls are not strong) |
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If debt was retired during the year, |
-auditor will examine the terms of retirement (at maturity, will be in the original debt documentation) -if the debt was retired before maturity, the auditor will recompute any gains/loses on retirement and compare to the client figure |
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confirm significant year end balances with debt holders |
-if bond issue was publicly traded, auditor will confirm with bond underwriter or agent handling issue -if the bond issue was privately placed, auditor will confirm with the institutional investor(s) who purchased the bond issue if the debt is with a financial institution, auditor will confirm with that institution |
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Interest expense: auditor will |
-recalculate interest expense including amortization of discount/premium, and agree amount to client recorded amount -use analytics to evaluate the reasonableness of recorded interest expense |
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debt disclosure items include: |
restrictive covenants and bond indenture items, and classification of debt as current or long-term |
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IF there were any issues or purchases of stock |
-review BOD minutes to verify the terms of the transactions -any supporting documentation like underwriter letters -confirm terms with brokerage firm or transfer agents |
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Testing equity (overview) |
-Review BOD minutes -obtain/prepare a schedule for each class of stock, Tstock, and other equity accounts showing begin bal, audit period activity (new issue, repurchases, dividends), and ending bal -trace any significant equity transactions to the journals to see if they are recorded properly -re-compute any dividends and compare to the client's recorded amount - review the FS for diclosures |
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Review the FS to make sure the following is disclosed (equity): |
-Number of shares authorized, issued, OS -Stock options/warrants -stock features -RE transactions: appropriations of RE, prior period adjustments -any restrictions on equity |
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Extended procedures for debt |
- search public records to identify debt obligations - vouch and trace proceeds to CRJ -vouch and trace proceeds to CDJ -Agree debt terms with BOD mintues |
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Extended procedures for equity |
-confirm terms of equity arrangements and shares held directly with shareholders -confirm with shareholders regarding any side agreements -employ an appropriate level of professional skepticism and carefully analyze transactions -confirm with the transfer agent information on issued stock |
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Documentation for debt |
-copies of the debt agreements -identification of specific items tested -schedule of debt obligations and interest -a summary of the calculations supporting compliance with debt covenants -Confirmations or documentation of alternative procedures performed |
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Documentation for equity |
-client's articles of incorporation -a summary of changes in equity accounts -verification of authorization with respect to any changes in capitalization or declaration of dividends -confirmations with transfer agent or shareholders |
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To search for related parties: |
-Ask the audit committee and management for a list of related parties -review BOD minutes and SEC filings for mention of related parties -may perform UCC search to identify companies owned by the client -review journals and transactions for unusual terms -review journals for transactions with identified related parties (data mining) -review receivable and payable ledgers to identify activity with identified related parites |
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Examine underlying source documents to determine if the related party transactions are: |
- terms are reasonable -transactions have been properly recorded -Disclosed per GAAP |
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Full disclosure of related parties requires description of: |
- the nature of the relationship of related entities -dollar amount and nature of transactions -purpose of the transactions -future contractual obligations -terms of the transaction -manner of settlement -amounts due to or from related parties |
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completing the audit |
1. assess the client's ability to remain going concern 2. management rep letter 3. summarize/resolve audit adjustments 4. contingent losses 5. review of significant estimates 6. evaluate adequacy of disclosures 7. analytical review 8. quality review 9. management comment letter 10. communicating with the BOD audit committee subsequent events |
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2. management representation letter states: |
-management's responsibility for the financial statements - confirms significant representations made by management -continuing appropriateness of those repsonses |
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3. summarize and resolve possible audit adjustments |
-allows auditor to determine if material in the aggregate, if there is a material weakness in IC |
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4. contingent losses |
-if probable and reasonably estimable, must be accrued -most other contingencies should be foot note dislosed |
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Primary sources of evidence regarding contingent liabilities |
-ask management to describe/evaluate any contingencies at the balance sheet date -examine BOD minutes, contracts, and correspondence up to end of fieldwork for evidence of contingencies -send letter to client's outside legal counsel |
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Ask attorneys to to provide the following for each contingency |
-additional information regarding the identified contingencies -description of any unidentified contingencies -evaluation of probability of, and estimate of, any potential loss |
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5. review of significant estimates: during field work focus on factors and assumptions that are: |
- significant to the accounting estimate -sensitive to variations -deviations from historical patterns subjective and susceptible to misstatement and bias -inconsistent with current economic trends |
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7. analytical review |
-gaas requires auditor to use analytics before and after fieldwork -identify unusual account relationships -ask whether the results make sense in light of current information |
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8. quality review |
-who performed the engagement quality review -documents reviewed by the quality engagement reviewer -significant discussions held by the engagement quality reviewer -date of the engagement quality reviewer's approval for issuance |
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10. communicating with the BOD audit committee |
-auditor responsibility -management estimates -audit adjustments -uncorrected misstatements -accounting policies -other matters |
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unmodified with explanatory paragraph |
- following gaap will result in misleading FS, rule 203 -inconsistent application of gaap -where the auditor has substantial doubts about client's ability to remain a going concern -auditor wishes to emphasize particular event, transaction or subsequent occurrence -changes in comparative statements |
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Qualified report |
-statements present fairly, except for material, but localized unjustified depart from gaap - statements present fairly, lack adequate disclosure -auditor is unable to obtain sufficient, competent evidence to support a material, but localized, portion of the statements - para 3 = problem para 4 = "except for" |
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adverse |
-statements materially misleading - pervasive departure from gaap -statements don't present fairly |
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Departure from gaap |
- justified or unjustified - amount of misstatement -pervasiveness of the misstatement -potential misstatement on statement users |
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scope limitation imposed by: |
-client or circumstance -materiality of accounts involved -auditor ability for an opinion on the statements without evidence |
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accountant may be asked to attest to |
-financial statement reviews -forecasts and projections -pro forma financial information - compliance with contracts or regulator requirements |
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In a financial statement review, the accountant will perform a limited number of procedures including: |
- inquiry: BOD minutes, preparation of statements per gaap, changes in business activities or accounting principals, unusual/unexpected results -reconcile the TB to the FS -inquiry and analytical procedures performed for each significant account balance -read statements to determine whether they conform to gaap |
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procedures for additions to fixed assets |
-reconcile additions recorded in the equipment subsidiary ledger during the audit period to the audit work paper -vouch additions to PO VI financing docs, BOD min -vouch expenditures to vendor invoices and supporting doc, to see if cap is appropriate -review lease agreement |
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procedures for disposals and impairments for fixed assets |
-select a sample of older fixed assets from the equipment ledger and trace to physical asset, if not there than unrecorded disposal -tour the client's facilities and note any fixed assets that appear idle, discarded, impaired - trace to ledger to see if written down, if not unrecorded impairment -review fixed asset acquisition documents for trade-ins - trace old asset to ledger to see if removed - examine insurance policies -gain/loss on disposals |
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Leases |
-review agreements determine if cap or op -determine if assets and lease obligations have been recorded at net present value -recalculate lease interest expense -review client disclosure if it is gaap |
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Depreciation expense |
-methods are consistent with prior years -read footnotes for all relevant info disclosure -consider changes in business and technology and deprecation estimates -analytics and recomputation |
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substantive for marketable securities (4) |
-audit period purchases listed at cost, sales and disposals at net proceeds -calculate interest and dividend income -ask management about changes in expected holding period to determine if securities are long/short -recalculate gains/losses |
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common test of receivables |
-comparing quantities shipped and billed with customer order -scan accounts receivable ledger and journal for unusual activity -review and analyze credit memos and other adjustments to receivables -analyze recoveries of receivables previously written off |
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sales cutoff as a sub test of a/r |
are done by taking a sample of transactions recorded in the sales journal just before and after year end. then the auditor must vouch these transactions back to their sales invoices, shipping documents, and inventory control records. vouching tests for existence, reprocessing tests for completeness. existence jan. completeness dec. |
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completeness - acquisition cycle |
-tracing inventory counts to subsidiary ledger -cutoff tests completeness -inquire about any inventory on consignment or stored elsewhere |
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valuation - acquisition cycle |
-unit purchase prices - verified by tracing to purchase orders and vendor invoices - |
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Unqulified FS scope |
-conduct of the audit in accordance with pcaob -plan and perform to obtain reasonable assurance -procedures performed -limitations of audit (sampling, reasonable assurance) -assessment of accounting principles used and estimates made by management -reasonable basis for opinion |
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unqual IC scope |
-conduct in accordance with pcaob -plan and perform to obtain reasonable assurance -assess risk -evaluate the design and operating effectiveness of ic based on assessed risk -reasonable basis for opinion |
