1
Q
what kind of companies have Statutory requirements for financial statement audits?
A
Corporations Act ■ Public interest entity ■ Proprietary companies - Large - Small if directed ■ Companies limited by guarantee if rev >$1m
2
Q
what is Information Risk?
A
“The risk that information on which a business decision is made is inaccurate”
3
Q
what causes information risk? 4
A
■ Remoteness of information
■ Biases/ motives of the provider
■ Voluminous data
■ Complexity of transactions
4
Q
what are the The benefits of an external audit? 4
A
■ access to capital markets.
■ lower cost of capital
■ A deterrent to inefficiency and fraud
■ Control and operational improvements
5
Q
t2 whats the difference between General Controls and Application controls?
A
GC Manual and computer controls affecting the overall computer information system,
AC Controls over the processing of transactions within a specific accounting application, such as invoicing, purchasing and payroll
6
Q
t2 what are 4 examples of general controls?
A
1: Segregation of I T duties
2: Control over programs
3: Control over data
4: Other general controls
7
Q
t2 what are 4 examples of application controls?
A
■ Data preparation i.e. renumbered source docs
■ Data entry i.e. password access
■ Transaction processing and master file update. i.e. detect errors in data
■ Document and report generation i.e. controls to ensure reasonable outputs
8
Q
t2 who is responsible for preparing financial statements? what are Financial Statements based on?
A
managers
judgement- factors determining impairment
estimations - i.e. useful life
choice - i.e. depreciation
9
Q
t3 define auditing
A
A systematic process of objectively obtaining and evaluating evidence
regarding assertions about economic actions and events
to ascertain the degree of correspondence between those assertions and established criteria
and communicating the results to interested users.”
10
Q
t3 Assertions fall into two categories what are they?
A
transactions and events
account balances
11
Q
t3 what is underlying accounting data? what are examples of corroborating info?
A
- journal entiers, general and subsidiary ledgers, working papers and spreadsheets
- invoices, sales orders, shipping notes, POs, receiving report
12
Q
t3 what are the 2 directions of testing? what assertion do they test?
A
tracing
source doc to journal entry
completeness
vouching
journal entry to source doc
occurrence
13
Q
t3 shipping note to sales journal?
what is the direction of testing? what assertion if being tested?
A
tracing
completeness
14
Q
t3 inventory records to physical inventory?
what is the direction of testing? what assertion if being tested?
A
vouching
existence
15
Q
t3 physical inventory to inventory records?
what is the direction of testing? what assertion if being tested?
A
tracing
completeness
16
Q
t3 sales journal to shipping note?
what is the direction of testing? what assertion if being tested?
A
vouching
occurrence
17
Q
t3 audit evidence must be relevant and reliable, what makes evidence revealed?
A
Direction of testing - vouching vs tracing
Timeliness - how close evidence is to balance date
Appropriateness of procedure
18
Q
t3 what are the four key steps to Performing Analytical Procedures?
A
- develop expectation about account
- determine level of difference that will be acceptable
- compare balance amount/ratio analysis to expectation
- investigate significant differences
19
Q
t3 what can an auditor base their expectations on for analytical testing purposes?
A
- prior period results
- budget amounts
- relationships between financial items for the period
- compare to other firms/industry averages
- relationship between financial and non-financial data
20
Q
t4 what are the two categories of testing?
A
- test of controls - effectiveness of controls in detecting, preventing and correcting material misstatements
- substantive testing -misstatements at assertion level
21
Q
t4 what does the auditor do when testing controls? 4
A
- Applying a procedure to test a specific internal control that the client has put in place to meet an objective (assertion).
- identify the evidence source, and the attribute of interest
- determine the criterion for success (Tolerable Deviation Rate).
- determine sample size
22
Q
t4 Select a sample of purchase orders and inspect for evidence of authorisation?
what assertions is being tested? what is the evidence source? what is the item of interest?
A
occurence
PO
managers signature
23
Q
t4 what does the auditor do when carrying out substantive tests? 4
A
- Apply a procedure to test an assertion about a particular item in the financial statements.
- identify the evidence (information) source
- criteria for success (requirements of the accounting standards and materiality level).
- determine the method of evidence collection, and (where sampling is used) the sample size.
24
Q
t4 what are two types of substantive tests?
A
- test of details i.e. account balance, class of transactions or disclosure.
- Substantive Analytical Procedures- relationships between accounting data and related information to
determine the reasonableness of relationships, and to identify unusual fluctuations.
25
t4 a substantive test of details, has which three sub categories?
- Tests of of Balances
- Tests of Transactions-validity of transaction classes.
- Test of Disclosures -required disclosures are made and that the overall presentation of the financial statements is satisfactory.
26
t4 sample of entries in the Sales Journal to the Shipping Order
what type of test is this? what is the direction of testing?what assertions is being tested? what is the evidence source?
- substantive Test of Transactions
- Vouching
- Occurrence
- sales journal, shipping note
27
t4 Compare the closing balance of Accounts Payable with those of previous years.
what type of test is this? what assertions is being tested? what is the evidence source?
- substantive analytical procedure
- completeness
- AP account
28
t4 Write to sample of the client’s debtors and ask them to confirm the balance owed to client.
what type of test is this? what assertions is being tested? what is the evidence source?
- substantive test of balances
- existence and rights and obligations
- third party confirmations and AR account
29
t4 what is an example of a Dual Purpose Test?
checking an invoice for
- signature - TOC
- check that account number is correct for the customs Substantive Test Of Transaction
30
t4 which test provides Indirect and Direct Evidence?
indirect evidence of misstatement - tests of control
| direct evidence of misstatement - substantive tests
31
t4 whats the formula for the audit risk model?
AR = IR x CR x DR
32
t4 what principle is applied with the audit risk model?
the greater the risk of material misstatement the greater the amount of appropriate evidence needed
33
t4 if an auditors wants to be more certain about an audit opinion, what will happen to the level of audit risk? what does this imply for evidence and work load
the acceptable Audit risk level will be reduced - implying more appropriate evidence will be needed, therefore the auditor must do more work
34
t4 by setting the audit risk to a particular level what can the auditor do?
auditors seek a balance between the costs of an incorrect audit opinion and the costs of performing the additional work necessary to reduce audit risk.
35
t4 what are the 3 main causes of audit risk?
- nature and environment of entity
- effectiveness of controls
- effectiveness of audit procedures
36
t4 Inventory obsolete valuation is problematic.
what account is impacted and what is the potential misstatement?
- inventory
| - inventory overstated
37
t4 Unusual pressures on management. Sales recognised before they are completed.
what account is impacted and what is the potential misstatement?
sales
| sales overstated
38
t4 Complexity of transaction: Debt instrument
what account is impacted and what is the potential misstatement?
```
loans
Loans (and equity) wrongly classified
```
39
t4 sales transactions not subject to ordinary processing
what account is impacted and what is the potential misstatement?
sales
| Sales overstated or understated
40
t4 Judgement required for account balance of depreciation
what account is impacted and what is the potential misstatement?
dep expenditure
| dep over/ understated
41
t4 Rapid change in technology
what account is impacted and what is the potential misstatement?
PP&E
Depreciation/ Carrying amount (useful economic life)
42
t4 what causes CONTROL RISK? which areas does it nee to be considered? 3
nature of entity's internal controls
consider control risk in relation to each transaction cycle, account and assertion.
43
t4 what are the 3 main causes of control risk?
- Poor control environment
- Problems with information system
- Ineffective control activities
44
t4 which two risks in the audit risk model can the auditor not control?
AR = IR x CR x DR
IR
| CR
45
t4 what is detection risk? what causes DR?
risk that the auditor will not detect a misstatement exists in an assertion that could be material, either individually or when aggregated with other misstatements
Detection risk arises because of the (in)effectiveness of the audit work
46
t4 what are the 3 main causes of detection risk?
- problems with planning
- Problems with collection of evidence
- Problems with interpreting results of testing
47
t4 how can an auditor reduce DR?
■ Appropriate planning, direction, supervision and review.
■ Decisions about the nature, timing and extent of audit procedures
■ The effective performance of the procedures and the evaluation of results
48
t4 how can the audit risk model be rearranged to plan for DR?
DR = AR / (IR x CR)
49
t4 what are the 3 steps in Applying the Audit Risk Model?
[1] Set a planned level of audit risk
[2] Assess inherent risk and control risk
[3] Determine appropriate level of detection risk.
50
t4 if both IR and CR are high, what impact will this have on DR? if they are low?
low level of detection risk
| high level of detection risk
51
t4 how does the audit strategy change if control risk is low vs high?
low CR: high TOCs, reduced substantive testing
| high CR: low TOCs high level of substantive testing
52
t4 what are two conents of the Working Papers?
permanent file
| current file
53
t4 what is usually included in the permanent File?
overall details of the company
■ Copy of constitution
■ Chart of accounts
■ Ongoing contracts, e.g. loan agreements
■ Analysis of accounts of ongoing importance
■ Results of previous analytical procedures
■ Copies of significant correspondence
■ Extracts from minutes of meetings
54
t4 what is usually included in the current File?
details specific to the current audit?
■ Evidence of planning, including audit strategy
■ Details of the reviews undertaken by the
auditor of internal controls
■ The audit program
■ Results of audit tests
■ Other evidence relied on by the auditor
■ Working trial balance and related schedules
■ Draft financial statements
55
t4 what are 3 types of auditor experts? (areas)
■ Industry specialists
■ Functional specialists
■ Technical specialists
56
t4 what are the 3 levels of materiality?
■ Materiality for the financial statement as a whole.
■ A materiality level for specific classes of transactions, balances or disclosures.
■ Performance materiality.
57
t4 what does the Materiality for the financial statement as a whole imply? what is this specific to?
Maximum amount by which the financial statements could be misstated without affecting the decisions of users.
Entity/ Engagement specific.
58
t4 when assessing materiality of the whole statement it is important to set appropriate base, list types of bases and relative advantage 4
the appropriate base
- Net profit - relevance
- total revenue - stability
- total assets - predicability/stability
- equity - stability
59
t4 audit risk, materiality and evidence, discuss their relationship.
what does it mean if auditor sets low materiality?
- if AR high - materiality level should be set low
- if materiality is low - will require more/better quality of audit evidence
■ The lower the level of materiality, the more confident that auditor can be about his/her conclusions.
60
t5 what are 6 key questions the auditor must ask of themselves during client Acceptance and Continuance stage of the audit?
■ Does the auditor wish to be associated with the entity?
■ Can the auditor perform the audit competently?
■ Can the meet the independence and other
ethical requirements?
■ Why does the entity want an audit?
■ If there is a change of auditor-why?
■ What is the applicable financial reporting framework?
61
t5 how does audit planning ensure that audit runs smoothly? 5
```
■ Ensure effective audit
■ Ensure efficient audit
■ Focus on areas of greatest risk
■ Resource allocation
■ Identify concerns at an early stage and discuss with management
```
62
t5 what are the 4 key initial planning considerations for audit engagements?
- Locations and timing issues
- select stuff
- evaluate the need for outside specialists
- prepare working papers
63
t6 what are three quick tests an auditor can do to assess business risk?
- SWOT
- PEST
- Value chain approach
64
t6 why does the auditor uses analytical procedures as a risk assessment tool at the planning stage?
■ to identify issues of which the he/ she was unaware.
■ Enhances understanding of the client and its environment.
■ Identifies areas that require greatest attention.
■ Highlights unusual relationships and unexpected fluctuations.
65
t6 The audit must be planned in such a way that the auditor has a reasonable expectation of detecting any material misstatements. Where the auditor believes that the risk of misstatement is higher, what will the auditor do to ensure that they are detected?
set materiality low
66
t6 what are three things that may affect the level of performance materiality set?
■ Users’ expectations (e.g. management remuneration).
■ Key disclosures in relation to the entity’s industry, (e.g. R&D costs for a pharmaceutical co.)
■ Whether attention is focussed on a particular
separately disclosed aspect (e.g. a newly acquired business).
67
t6 if there is one or more specific transaction classes/ balances for which misstatements of a lesser amount are expected to influence users’ decisions, what must he auditor do with the level of materiality for these specific items? give three examples of such items
a lower level of materiality will be applied
■ Remuneration
■ Research and Development
■ Items impacting loan covenants
68
t6 what causes inherent risk,? at which two levels must IR be considered?
IR - nature of entity
```
report level (i.e. management experience/integrity/pressure)
assertion level (i.e. impacting only one account/transaction class)
```
69
t6 was are 5 areas that are considered special business risk areas?
- Fraud
- Earnings management
- Illegal acts
- Related parties
- Appropriateness of going concern
70
t6 what is earnings management?
the use of judgment and / or the structuring of transactions to alter financial reports to influence the perceptions of those reading the reports about the underlying economic performance of the company
71
t6 list four examples of earnings management
■ Intentional violation of accounting standards that are themselves immaterial.
■ Inappropriate revenue recognition.
■ changes under the guise of restructuring.
■ Improper accruals and estimations of liabilities in good times.
72
t6 why is it important for the auditor to consider related parties of the audit client? 3
■ Source of audit evidence
■ Requirements of accounting standards & laws
■ Motivation for such transactions
73
t6 list four things that reduce the risk of an entity not being able to fulfil the requirement of going concern?
Asset factors ■ Ability to dispose assets ■ Sale and leaseback
Debt factors ■ Unused lines of credit ■ Debt restructuring
Cost factors■ Postpone expenditures ■ Reduce discretionary expenditures
Equity factors ■ Vary dividend ■ Additional investment
74
t6 what are the key objectives of internal controls? 6
■ Risks are identified and minimised
■ Management decision making is effective
■ Transactions are carried out in accordance with authorisation requirements
■ Prompt (timely) recording
■ Access to records and documents in
accordance with management instructions
■ Detection and correction
75
t6 what are examples of Management Controls, that are included in internal controls/ make them effective? 5
■ Communicate objectives and goals
■ Establish lines of authority and accountability
■ Monitor internal and external conduct
■ Determine policies and procedures for dealing with risk
■ Monitor performance
76
t6 list 3 internal controls involving documents
■ Pre-numbering of documents and sequence checks
■ Restriction of access (physical and electronic “locks”)
■ Document matching
77
t6 the internal control of authorisation, ensures which assertion is accurate?
occurrence
78
t6 the internal control of program control, ensures which assertion is accurate?
accuracy
79
t6 the internal control of sequence check, ensures which assertion is accurate?
completeness
80
t6 the internal control of independent check, ensures which assertions is accurate? 2
cut-off and classification
81
t6 what are 5 procedures for Understanding Internal Controls?
■ Consider past experience with client
■ Inquiries of key management
■ Read policy and systems manuals
■ Inspect documents containing policies and procedures
■ Observe entity activities and operations
82
t6 what are 5 things within the entity that help the auditor obtain an Understanding of Internal Controls?
```
■ Significant classes of transactions
■ Initiation of transactions
■ Records, documents and accounts
■ Accounting processes
■ Controls around journal entries
```
83
t6 what are 4 things that make source docs and records appear more adequate?
- Clear and well designed
- Multi-copy, prenumbered forms
- Monthly statements to/from customers
- Internal verification/ validity
84
t6 Does the Credit Manager perform a credit check for sales?
which assertion is being tested for?
whats the internal control?
Occurrence
authorisation
85
t6 Are Shipping Orders prenumbered and are sequences accounted for periodically?
which assertion is being tested for?
whats the internal control?
Completeness
renumbered source documents
86
t6Does the Financial Controller review supporting documentation prior to making payment?
which assertion is being tested for?
whats the internal control?
accuracy
| Reviews and Approvals
87
t6 Does the client have clear instructions for recording transactions around balance date?
which assertion is being tested for?
whats the internal control?
cut-off
| Written procedures
88
t6 Does a second Clerk check that account codings on source documents are in accordance with the entity’s chart of accounts?
which assertion is being tested for?
whats the internal control?
Classification
| Independent Check
89
t6 Are authorising and executing transactions undertaken separately?
which assertion is being tested for?
whats the internal control?
occurrence
| segregation of duties
90
t6 how do auditors document their understanding of internal controls?
Internal control questionnaires
Narrative memoranda
Flowcharts
91
t6 what should an auditor do if CR is assessed as high?
performed planned and additional substantive tests
92
t6 what should an auditor do if CR is assessed as low?
perform TOCs to find deviations in CR assessment.
if deviations don't exist: then perform planned substantive tests
if deviations exist: check if there are compensating controls - if yes then perform planned substantive tests
if no then perform planned and additional substantive tests
93
t7 where does the auditor place the greatest focus when assessing business risk?
Auditor places greatest focus on areas where risk of material misstatement is highest.
94
t7 what are the two categories of business risk?
CR and IH
95
t7 what are the 4 steps to testing internal controls?
■ Identify the internal control
■ Determine the objective
■ Specify the assertion
■ Specify a test of the internal control
96
t7 Every Sales Orders is prepared (in triplicate) and forwarded to the Credit Department where the Credit Manager checks that the amount of the sale is below the limit approved for the customer. The Credit Manager evidences performance of this control by signing the Sales Order.
■ Determine the objective
■ Specify the assertion
■ Specify a test of the internal control
Control Objective: Sales are only made to customers who can afford to pay for the goods.
This aims to satisfy the occurrence objective.
Test: Select a sample of Sales Orders from the file, and inspect for evidence of authorisation (signature). Count those signed/ not signed and determine the Percent not signed. Compare this with the Tolerable Deviation Rate (TDR)
97
t7 what are the 5 areas if internal control system?
```
the control environment
risk assessment processes
information system
monitoring of controls
control activities
```
98
t7 when testing controls the auditor is trying to determine which three things?
■ Existence of controls
■ Effectiveness of controls
■ Continuity of controls.
99
t7 what are 4 control activities for sales?
- Adequate separation of duties
- Proper authorisations
- Adequate documents and records (including document matching)
- Independent checks on performance
100
t7 The auditor selected a sample of Sales Orders from the file and inspected for evidence that they were approved (initialled by manager).
what is the internal control, assertion and control objective?
Control Objective: Sell only to customers who have the ability to pay for the goods/services supplied.
Internal Control: Credit approval must be undertaken before sales are processed.
Assertion: Occurrence.
101
t7 Ensure all shipments are recorded
what is the internal control, assertion and test of control?
- Assertion: Completeness
- Internal Control: Use of prenumbered documents and sequence is accounted for.
- Test of Control: The auditor inspected filed Shipping Notes and reviewed for evidence (tick) that a sequence of renumbered Shipping Notes was account for
102
t7 Control Objective: Ensure all sales are invoiced
what is the internal control, assertion and test of control?
- Internal Control: Quantities shipped are periodically reconciled to quantities invoiced.
- Assertion: Completeness
- TOC:The auditor inspects for evidence (initials) of client’s reconciliation of shipments to invoices.
103
t7 Control Objective: Ensure accuracy of transaction processing
what is the internal control, assertion and test of control?
Internal Control: Re-computation and comparison of details on invoice (quantity, price, terms) with supporting documentation.
Assertion: Accuracy.
TOC:The auditor inspects a sample of entries in the sales journal and reviews for evidence that the corresponding invoice was recomputed and compared with supporting documentation.
104
t7 Control Objective: Ensure sales are recorded in correct period
what is the internal control, assertion and test of control?
Internal Control: Written procedures detailing recording of last sale for the period and first sale for the following period and independent checks undertaken.
Assertion: Cut-off.
TOC: The auditor ascertains (inquiry), that written procedures
were followed and independent checks carried out.
105
t7 control Objective: Ensure transactions are properly classified
what is the internal control, assertion and test of control?
Internal Control: Appropriate account codings on sales
documents.
Assertion: Classification.
TOC: The auditor reviews (inspects) approvals of account codings.
106
t7 Control Objective: Recorded cash receipts are for collections from sales to customers of the entity.
what is the internal control, assertion and test of control?
Internal Control: Cash receipts matched to sales invoices. Assertion: Occurrence
TOC: The auditor selected a sample of entries in the Cash Receipts Journal and reviewed evidence of matching to specific sales invoices
107
t7 control Objective: Ensure that all cash receipts are recorded and deposited
what is the internal control, assertion and test of control?
Internal Control: Segregation of duties
Assertion: Completeness
TOC: The auditor observes that opening of mail and prelisting of cash receipts is undertaken independently of the cashier
108
t7 Control Objective: Accurate processing of cash receipts.
what is the internal control, assertion and test of control?
Internal Control: Bank accounts are reconciled promptly with
cash record and general ledger.
Assertion: Accuracy.
TOC: The auditor inspects client’s banks reconciliations for evidence of performance (tick).
109
t7 what are the Primary Control Activities for the Expenditure Cycle?
Segregation of duties
Control over source documents
Checks, approvals and reconciliations
110
t7 what are 4 examples of source documents?
Purchase Orders
Receiving reports
Vouchers
Cheques
111
t7 Purchases are for goods and services required by the entity
what is the internal control, assertion and test of control?
Internal Control: Purchases must be approved by Manager.
Assertion: Occurrence.
TOC: The auditor selects a sample of purchase orders and checksfor evidencethattheywereapproved(initialled by manager)
112
t7 control Objective: Recoded purchases are bona fide
what is the internal control, assertion and test of control?
Internal Control: Comparison of Purchase Order, Receiving
Report and Sales Invoice before recording liability.
Assertion: Occurrence.
TOC: The auditor inspected sample of entries in the purchasesjournaland vouchedtovoucherpacksto
for evidence of reconciliation.
113
t7 Ensure that all purchases are recorded
what is the internal control, assertion and test of control?
Internal Control: Use of prenumbered documents and a
sequence is accounted for.
Assertion: Completeness
TOC: The auditor inspected filed Receiving Notes and reviewed for evidence (tick) that a sequence of prenumbered Receiving Notes was account for
114
t7 Purchases are correctly classified.
what is the internal control, assertion and test of control?
Internal Control: Independent review of recording of purchases.
Assertion: Classification
TOC: The auditor inspected a sample of entries in the Purchases Journal for evidence of independent review
115
t7 Control Objective: Recorded cash payments are for G&S that were authorised and received.
what is the internal control, assertion and test of control?
Internal Control: Cheques prepared only when supporting documents matched and approved.
Assertion: Occurrence.
TOC: The auditor selected a sample of transactions from the Cash Payments Journal and inspected supporting documentation for indication of checking and approval.
116
t7 control Objective: All cash payments are recorded.
what is the internal control, assertion and test of control?
Internal Control: Presented cheques and electronic payments listedonbankstatementare reconciledto
accounting record.
Assertion: Completeness
TOC:The auditor inspected the client’s Bank Statement for evidence of reconciliation
117
t7 Cash payments are accurately recorded
what is the internal control, assertion and test of control?
Internal Control: Cash payments verified (independent review)
Assertion: Accuracy.
TOC: The auditor inspected a sample of entries in the Cash Payments Journal for evidence of internal verification
118
t7 list 4 Potential Misstatements? which control is lacking?
Classic disbursements fraud- fake accounts (control over source Docs)
Kickbacks - purchasing office gets paid by supplier (control over purchasing)
Illegal Acts - stealing funds (control over journal entries)
Unauthorised executive perks - exceeding credit card limit (reconciliation and authorisation)
119
t7 Control: To ensure sales are made only to customers who can be reasonably expected to pay, sales must be processed using Sales Orders that have been authorised
by the Credit Manager.
what is the audit objective, the attribute of interest, population and sampling unit?
The audit objective = occurrence.
Attribute = presence of the credit manager’s signature.
Population = the total number of sales for the year
Sampling unit = an individual sale
120
t7 what are three methods of determining sampling size?
Statistical; Judgment or Haphazard.
121
t7 if sample deviation rate is larger than the tolerable deviation rate what must auditors do?
- ask mgmt to investigate and adjust
| - modify planned audit procedure
122
State the main benefit of using multi-copy forms.
Information is recorded only once and therefore reduces the possibility of error.
123
why do auditors prefer using dollar unit sampling?
Auditors have a preference for dollar unit sampling because there is a higher probability (when compared to classic variable sampling) that the larger items in the population will be included in the sample.
124
t8 Substantive Tests are used to?
Substantive tests are used to reduce detection risk
125
t8 what are the three types of substantive test?
■ Substantive Tests of Transactions
Tests to substantiate transactions
■ Substantive Tests of Details of Balances
Tests to substantiate account balances
■ Substantive Analytical Procedures
Use of analytical procedures to substantiate account balances
126
t8 whats the Difference Between Substantive Tests of Transactions and Tests of Controls?
■ Substantive Test of Transactions
Tests to substantiate transactions
■ Test of Controls
Tests effectiveness of controls over
processing transactions
127
t8 For the balance of Cash at Bank, the emphasis is on which two assertions?
E and Co, using confirmations and substantiations of bank reconciliations.
128
t8 For transactions that or Cash at Bank, the emphasis is on which two assertions?
O and Co.
129
t8 where the entity undertakes foreign currency transactions, which assertions are important?
accuracy and valuation and allocation
130
t8 whats the formula for bank recs?
```
Cash at Bank (Accounting Records)
- Deposits in transit
- Unrecorded bank fees Customer
+ Outstanding cheques
+/- Other reconciling amounts.
Cash Balance per Bank Statement
```
131
t8 Confirm client’s balances with bank. Perform a bank reconciliation
whats the assertion and direction of testing? what if they were testing for completeness?
existence of Cash
Balance Cash Balances in Balance Sheet exists at B/D
vouching
completeness Perform a bank reconciliation, tracing process
132
t8 sample of entries in the Cash Journal to supporting documentation.
whats the assertion and direction of testing?
occurrence, vouching
133
t8 from source document to Cash Receipts Journal
whats the assertion and direction of testing?
completeness tracing
134
t8 for sales and AR which two assertions have the most emphasis?
existence and valuation of accounts receivable.
sales occurrence, accuracy and cut-off.
135
t8 Auditor undertakes a STOT to find out if all
transactions are bona fide, and that no fictitious sales transactions have been recorded.
whats the concern and whats the test?
Concern here is overstatement
Test: Vouch a sample of entries in the sales journal to shipping order/ sales order
136
t8 Auditor undertakes STOT to find out whether all sales that were made were actually recorded
whats the concern and whats the test?
Concern is understatement
Test: Trace a sample of shipping orders/ sales orders and to the sales journal
137
t8 STOT to gather evidence that transactions were recorded in the correct period
whats the concern and whats the test?
cut-off
Test: Inspect the last sales invoice before balance date and the first sales invoice after balance date for cut off. Compare with shipping orders.
138
t8 why do auditors review aged trial balances?
Auditor reviews aged trial balance to ascertains whether the valuation of Acc. Rec. is appropriate.
139
t8 sample of entries in the Purchases
Journal to the Receiving Note and Purchase Order (supporting documentation).
whats the concern?
Concern here is overstatement.
| Auditor wants to find out if all recorded purchases transactions are bona fide.
140
t8 sample of Receiving Notes to the Purchases Journal to ensure that each is recorded?
whats the concern?
completeness/ understatement
141
t8 STOT to gather evidence that acquisition transactions were recorded in the correct period
whats the concern and whats the test?
cut- off
Compare dates on receiving reports and vendors’ invoices in the purchases journal
142
t8 which assertions have emphasis on them for AP?
Completeness
Rights and obligations and purchases cut-off are also important.
143
t8 The auditor compared the closing balance of Accounts Payable with those of previous years.
what is he testing for?
completeness
144
t8 The auditor inspected the Cash Payments Journal
after balance date and traced payments to the list of Acc. Payable recorded by the client at balance date
what is he testing for?
completeness
145
t8 for inventory what are the main assertions?
existence and valuation and allocation
146
t8 if Projected Error > Allocated Materiality, what does the auditor need to do?
■ Ask management to investigate & make adjustments
■ Modify planned audit procedures, and
undertake more Substantive Testing;
■ Consider result with results of other STs and
their effect on the audit report.
147
t9 what is are the significant issues auditors must communicate with managers? 4
Fraud or information that a fraud may exist [ASA240:40]
Material weaknesses in the design or implementation of internal controls [ASA265.9]
Going Concern assumption is inappropriate; or where management will not extend the assessment thereof [ASA 570:25]
Assessment Key Audit Matters [ASA 701.17]
Auditing
flashcards
Decks in class (16)
# Cards
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Topic 1 - Intro to Auditing24
-
Topic 2 - Business Processes, Internal Control and Financial Report Preparation10
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Topic 3 - Fundamental Audit Concepts13
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Topic 4 - Fundamental Audit Concepts II30
-
Topic 5 - Client Acceptance and Initial Audit Planning15
-
Topic 5.2 - Understanding the client and the environment in which it operates11
-
Topic 6.1 - Assessing Inherent Risk and Specific Business Risks, and Determining Materiality26
-
Topic 6.2- Understanding and Assessing Internal Control14
-
Topic 7 - Test of Controls50
-
Topic 8 - Substantive Testing57
-
Topic 9 - Part 1 Completion and Review18
-
Topic 9 - Part 2 The Audit Report19
-
Topic 10 - Ethics9
-
Topic 11 - Legal Environment26
-
Topic 12 - Part 1 Other Assurance Services and Engagements12
-
Summary147
