Auditing Exam 3 Chapters 10,11,12,14
Controls and Assertions: Match sales invoices with shipping documents, purchase orders, and sales orders. _________ __________ ______ ______ ___________ _________ ________
Existence, occurrence, cutoff, rights, obligations, valuation, accuracy -for AR
Controls and Assertions: Segregate duties over sales and collections of receivables. _________ __________ ______ ___________ _________ ________
Existence, occurrence, rights, obligations -for AR
Controls and Assertions: Reconcile bank (financial institution) accounts monthly. _________ __________ ______ ___________ _________ ________
Existence, occurrence, rights, obligations, valuation, accuracy -for AR
Controls and Assertions: Obtain credit approval of sales prior to shipment. _________ __________ _________ ________
Existence, occurrence, valuation, accuracy -for AR
Cash typically has a ________ account balance, but auditors devote a large proportion of time to the audit of cash due to: 1. liab, rev, exp, and many assets flow through cash 2. most _________ asset so greater temptation for misappropriation 3. ________ risk account
small; liquid; high
The best evidence for collectability of ADA is
subsequent payments
A bank confirmation addresses (for cash)
the client's deposit and loan balances
Lapping definition
the concealment of a cash shortage by delaying the recording of cash receipts
Confirmations for A/P may be warranted when...
there is a search for unrecorded A/P
Primary objective for auditors in examining A/P
to test Completeness through external evidence held by the client (vendor invoice, statements)
Primary objective for auditors in examining A/R
to test Existence through internal evidence (invoices, receiving reports)
Evaluate the propriety of client's accounting for transaction. _________ ________
valuation, accuracy -for A/R
Obtain analyses of notes receivable and related interest. _________ ________
valuation, accuracy -for A/R
Controls and Assertions: Review of the clerical accuracy of sales invoices by a second person. _________ ________
valuation, accuracy -for AR
Controls and Assertions: Establish controls for the cost accounting system that accumulate appropriate inventory costs on a job order or process cost basis such as independent review of cost accumulations. _________ ________
valuation, accuracy -for Inventories
Evaluate the business purpose of significant and unusual sales transactions _________ ________ ____________ __________
valuation, accuracy, presentation, disclosure -for A.R
Determine whether any inventories have been pledged and review commitments. _________ ____________ __________
valuation, presentation, disclosure -for Inventories
What is a perpetual inventory system?
when inventory is updated constantly with many test counts throughout the year
Which of the following account balances reported on Hermida Co.'s balance sheet dated December 31, year 1 is most likely to rely on management estimates? a. Deferred income taxes of $30,000. b. Cash of $10,000. c. Investment in Gruler Co., accounted for under the equity method. d. Accounts payable of $7,000.
a. Deferred income taxes of $30,000.
Vouch balances payable to selected creditors by inspecting supporting documents _________ __________ ___________ _________ ________ ______
existence, occurrence, obligations, valuation, accuracy, cutoff -for AP
Inspect notes on hand and confirm those not on hand _________ __________ ______
existence, occurrence, rights -for A/R
Obtain listings of inventory and reconcile to ledgers _________ __________ ______
existence, occurrence, rights -for Inventories
Verify interest earned on notes receivable _________ __________ ______ ____________
existence, occurrence, rights, completeness -for A/R
Review the year-end cutoff of sales transactions _________ __________ ______ ____________ ______
existence, occurrence, rights, completeness, cutoff -for A/R
Perform analytical procedures _________ __________ ______ ___________ _________ ________
existence, occurrence, rights, completeness, valuation, accuracy -for A/R
Review significant year-end sales contracts _________ __________ ______ ___________ _________ ________
existence, occurrence, rights, completeness, valuation, accuracy -for A/R
Observe the taking of physical inventory _________ __________ ______ ____________ _________ ______
existence, occurrence, rights, completeness, valuation, cutoff -for Inventories
Obtain a copy of the completed physical inventory and test its accuracy _________ __________ ______ ____________ _________ ______
existence, occurrence, rights, completeness, valuation, cutoff -for Inventories
Review the year-end cutoff of purchases and sales transactions _________ __________ ______ ____________ _________ ______
existence, occurrence, rights, completeness, valuation, cutoff -for Inventories
evaluate the client's planning of physical inventory. _________ __________ ______ ____________ _________ ______
existence, occurrence, rights, completeness, valuation, cutoff -for Inventories
Controls and Assertions: Establish appropriate physical controls over inventories _________ ___________ ______ ___________
existence, occurrence, rights, obligations -for Inventories
Controls and Assertions: Establish general ledger control of inventories of raw materials, goods in process, and finished goods, and periodically reconcile to production records. _________ __________ ______ ___________ _________ ________ ____________ __________
existence, occurrence, rights, obligations, valuation, accuracy, presentation, disclosure -for Inventories
Perform analytical procedures (inventory) _________ ______ ____________ _________ ________
existence, rights, completeness, valuation, accuracy -for Inventories
What are derivative securities?
financial instruments that derive their values on the basis of some other item, referred as underlying, and often are complex in nature/easy to misunderstand; not susceptible to theft
A proof of cash is essentially a _____ detection procedure that may be used for any months during the year.
fraud
Evaluate financial statement presentation and disclosure (inventory) ____________ __________
presentation, disclosure -for Inventories
AR audit risk is ____________ because of 1. Many incidences of fraud have involved _____________ of receivables and revenue 2. Revenue recognition may be based on _________ accounting rules 3. Receivables and revenues are usually subject to ________ using significant accounting estimates
significant; overstatement; complex; valuation
Obtain trial balance of payables and reconcile with the ledgers _________ ________
valuation and accuracy -for AP
Obtain aged listing of receivables and reconcile to ledgers. _________ ________
valuation, accuracy -for A/R
What is a periodic inventory system?
determines inventory quantities solely by an annual physical account
Documents in the Revenue Cycle
-Customer purchase order, -sales order -bill of lading -sales invoice -control listing -credit memo
Internal Controls for Cash
-Segregation of Duties -Separate cash handling from recordkeeping -centralize receiving cash to extent practical -record receipts on timely basis -encourage customers to obtain receipts -observe register totals -deposit daily -make disbursements by check or electronic funds -small expenditure amount from petty cash -monthly bank reconciliations by employees not involved with cash or checks -compare recorded amounts to forecasted amounts
From Source Doc to Ledger
-Tracing -tests for coverage for completeness
From Ledger to Source Doc
-Vouching (what happened) -tests for support for existence and occurrence
Accrued Liabilities (Expenses) include
-salaries -interest -rent
Functions related to inventories
1. Purchasing 2. Receiving 3. Storing 4. Issuing 5. Processing 6. Shipping
A positive confirmation
A request to customers asking them to respond directly to the auditor if they agree or disagree with the indicated balance.
Is this a control deficiency? Voided checks are torn up and destroyed.
Agree
Is this a control deficiency? The purchasing department manager and assistant manager are the authorized check signers.
Agree; purchasing should not approve and sign
Misstatements of inventory directly affect
COGS and NI
Analyze bank transfers occurring year-end ______ _________ __________ ______ ____________
Cutoff, existence, occurrence, rights, completeness for cash
Verify the client's cutoff of cash transactions ______ _________ __________ ______ ____________
Cutoff, existence, occurrence, rights, completeness for cash
Recording payment on A/P JE
DR A/P CR Cash
Periodic Inventory System JE for Sales Transactions
DR A/R CR Sales Revenue
Perpetual Inventory System JE for Sales Transactions
DR A/R CR Sales Revenue DR COGS CR Inventory
Is this a control deficiency? When a disbursement is made based on paper supporting documents, those supporting documents are canceled by the individual who signs the check.
Disagree; person signing should be the one to perforate supporting documents
Is this a control deficiency? All cash receipts (checks) received through the mail are prelisted by the two individuals who open the mail.
Disagree; should be prelisted
Count cash on hand _________ __________ ________ ______ ______
Existence, occurrence, accuracy, cutoff, rights for cash
Obtain bank cutoff statements _________ __________ ________ ______
Existence, occurrence, accuracy, rights for cash
Obtain reconciliations of bank balances and consider reconciling bank activity _________ __________ ________ ______ ______
Existence, occurrence, accuracy, rights for cash
Send standard confirmation forms to financial institutions _________ __________ ________ ______ ______
Existence, occurrence, accuracy, rights for cash
Controls and Assertions: Mail monthly statements to customers and follow up on errors reported. _________ __________ ____________ ______ ___________ _________ ________
Existence, occurrence, completeness, rights, obligations, valuation, accuracy -for AR
Inventory includes
Finished goods WIP Raw materials
Controls and Assertions: Use a chart of accounts and an independent review of account classifications. ____________ __________
Presentation, disclosure -for A/R
Acquisition Cycle Documents
Purchase order Receiving report Vendor's invoice Vendor's statement
Determine adequacy of allowance for uncollectible accounts _________
Valuation -for A/R
Evaluate the bases and methods of inventory pricing _________
Valuation -for Inventories
Evaluate accounting estimates related to revenues _________ ________
Valuation and accuracy -for A/R
Test the pricing of inventories _________ ________
Valuation, accuracy -for Inventories
Accounts payable does not normally require a ?
confirmation
A negative confirmation
a form sent to a customer by auditors requesting that the customer respond only if the balance shown on it is incorrect
Primary Concern for AP
a possibility of understatement or omission of liabilities would lead to understatement of exp and overstatement of NI
An entity's internal control requires for every check request that there be an approved voucher, supported by a prenumbered purchase order, and a prenumbered receiving report. To determine whether checks are being issued for unauthorized expenditures, an auditor most likely would select for testing from the population of: a. Canceled Checks b. Approved Vouchers c. Purchase Orders d. Receiving Reports
a. Canceled Checks
Which of the following schemes might be detected through the use of a bank cutoff statement? a. Checks were written near year-end to reduce the balance in accounts payable but were not mailed until a week after year-end. b. Checks received by the cashier were not deposited and accounts receivable was not appropriately reduced. c. Checks were written in amounts in excess of invoice amounts in a collusion scheme in which the accounts payable clerk was misappropriating refunds of excess payments. d. Checks were written to nonexistent payees and mailed to the home addresses of officers.
a. Checks were written near year-end to reduce the balance in accounts payable but were not mailed until a week after year-end.
Purchase cutoff procedures should be designed to test whether all inventory a. owned by the company was recorded b. on the year-end balance sheet was carried at lower-of-cost-or-market c. owned by the company is in the possession of the company d. on the year-end balance sheet was paid for by the company
a. owned by the company was recorded
Accounts in A/P that may need confirmations
accounts where monthly statements not available, unusual transactions, with parent/subsidiary corps, pledged assets
Window Dressing definition
action taken by the client shortly before the balance sheet date to improve the financial picture presented in the financial statements
Which of the assertions related to accounts receivable will confirmations be least likely to provide evidence in support of? a. Rights and obligations b. Completeness c. Allocation and valuation d. Existence
b. Completeness
Which of the following auditing procedures will provide evidence to support management's assertions regarding the allocation and valuation of inventories? a. Vouching inventories to receiving documents. b. Determining the replacement cost of inventories. c. Vouching inventory counts to accounting records. d. Tracing items reported in the accounting records to inventory counts.
b. Determining the replacement cost of inventories.
Which of the following is a likely procedure to test the adequacy of the ADA? a. Foot the receivables lead schedule. b. Examine cash receipts received after year-end. c. Examine dates of purchase orders. d. Confirm receivables.
b. Examine cash receipts received after year-end.
Which of the following procedures would be appropriate for an auditor testing management's assertions related to the existence of investments in securities? a. Review bank confirmations for information about collateral arrangements. b. Compare recorded amounts with published market value information. c. Reconcile interest and dividends received. d. Review financial statements of investees accounted for under the equity method.
c. Reconcile interest and dividends received.
The fact that a company has significant amounts of cash in the form of foreign currency would raise the inherent risk of which management assertion regarding cash? a. Completeness b. Rights and obligations c. Valuation or allocation d. Presentation and disclosure
c. Valuation or allocation
Which of the following is NOT confirmed on the standard confirmation form used for cash balances at financial institutions? a. Cash checking account balances b. Loans Payable c. Cash savings account balances d. Securities held for the client by the financial institution
d. Securities held for the client by the financial institution
Amts withheld from employee pay is found most likely by an ___________
estimate
A/R mainly tests _________? A/P mainly tests ____________?
existence completeness
Obtain analyses of cash balances and reconcile them to general ledger _________ ________
existence and accuracy for cash
Controls and Assertions: Establish procedures for authorizing purchase transactions, reconciling purchase invoices to purchase orders and receiving reports, and verifying the clerical accuracy of purchase invoices. _________ __________ ______ ___________ _________ ________
existence, occurrence, rights, obligations, valuation, accuracy -for Inventories
Confirm receivables with debtors _________ __________ ______ _________ ________
existence, occurrence, rights, valuation and accuracy -for A/R
Window Dressing Example
if cash receipt not deposited daily, cash received for after the close of the year may be included in a deposit as of year-end which will overstate cash
Confirmation of receivables should be performed UNLESS 1. AR is _________ 2. The use of confirmations would be __________ 3. the auditor's combined assessment of inherent risk and control risk is _______ so audit risk can be reduced to an acceptably ______ level with ___________ tests
immaterial; ineffective; low; low; substantive
Accrued liabilities best reviewed ________________ after bal sheet date
immediately
Kiting Definition
manipulations that utilize temporarily overstated bank balances to conceal cash shortage or meet short-term cash needs (float period)
AR is shown on the balance sheet at...
net realizable value
If you don't receive a reply for a confirmation...
normally send another confirmation (if for a positive confirmation) and then perform alternative procedures for those who didn't answer
In inventory observation, auditors...
observe; not physically count/supervise (client does this)
A/R Confirmations can be ________ or ________
positive; negative
Ascertain the existence of pledged receivables. ____________ __________
presentation and disclosure -for A/R
Evaluate financial statement presentation and disclosure (AR) ____________ __________
presentation and disclosure -for A/R
Investigate receivables from related parties ____________ __________
presentation and disclosure -for A/R
Evaluate financial statement presentation and disclosure (cash)
presentation and disclosure for cash
Investigate payments to related parties ____________ __________
presentation and disclosure for cash
Evaluate financial statement presentation and disclosure (AP) ____________ __________
presentation, disclosure -for AP
Perform procedures to identify accounts payable to related parties. ____________ __________
presentation, disclosure -for AP
Proof of Cash (a substantive procedure)
reconciles the account balance and reconciles cash transactions during a specified period (a bank and book comparison)
purpose of examining cutoff bank statements
to verify the reconciling items on the client's year-end reconciliation; make sure recorded in correct period; find deposits/disbursements recorded in bank statement but not books and vice versa; recorded different amounts
McKesson & Robbins Fraud Case
- Significant impact on responsibility of auditors with respect to validity of inventories - Case: 1939 - the audited financial statements contained $19 million of fictitious assets including $10 million of nonexistent inventories
the relationship between accounts receivable and allowance for uncollectible accounts
-ADA is a contra asset -will reduce the A/R amount -ADA is amount of A/R estimated to not be paid by customers
most likely way to determine the balance of allowance for uncollectible accounts
-by estimate -multiply receivables balance by a reserve rate
Accounts Receivable includes
-claims for customers from sales -loans to officer/employee -loan to subsidiary -claims for tax refunds -advances to suppliers
Internal Control for Inventories
-control environment (integrity, ethical, HR, structure) -Risk assessment -Monitoring
Who signs a bank confirmation?
-customer signs first -financial institution signs after reviewing the information
Kiting Examples
-date of recording per transfer per the books are from different financial statement periods -date the check was recorded by the bank is from financial statement period prior to books
What do the auditors observe in a physical inventory observation?
-determine that all items are included -employees are complying -alert for inclusion for obsolete or damaged merch -record numbers of final receiving and shipping doc issues before inventory taking -make test counts -tag control
Internal controls over A/R
-independence of audit committee -management established tone at the top -commitment to competence -HR policies -monitoring policies -evaluate internal factors (control environment, risk assessment, division of duties)
A proof of cash may identify
-receipts/disbursement recorded in book but not bank -receipts/disbursement recorded in bank but not book -receipts/disbursement recorded at different amount in bank and book
Accounts Payable Includes
-short-term obligations from the purch of goods/services -invoices/statements -advertising, repairs, merch on credit
what should the auditor do upon receiving the cutoff statement
-test for accuracy -investigate significant checks on bank statement that did not clear on cutoff -trace deposits/disbursements in cutoff -check the dates for cutoff
Potential Sources of Unrecorded AP
-unmatched invoice/unbilled receive report -voucher payable entered subsequent to bal sheet -invoices received after bal sheet date -consignments where client acts as consignee
Notes Receivable includes
-written promise to pay back amt at a future date -notes for substantial amount -installment note/contract for seller to hold lien on goods
Controls and Assertions: Use prenumbered requisitions, purchase orders, and receiving reports and account for the sequence of documents. ___________ ______
Completeness, cutoff -for Inventories
Confirm accounts receivable ____________ _________ __________ ___________ _________ ________ ______
Completeness, existence, occurrence, obligations, valuation, accuracy, cutoff -for AP
Perform analytical procedures (AP) ____________ _________ __________ ___________ _________ ________ ______
Completeness, existence, occurrence, obligations, valuation, accuracy, cutoff -for AP
Reconcile liabilities with creditor's monthly statements ____________ _________ __________ ___________ _________ ________ ______
Completeness, existence, occurrence, obligations, valuation, accuracy, cutoff -for AP
Controls and Assertions: Segregate duties over purchases and custody of inventories. _________ __________ ____________ ______ ___________ _________ ________
Existence, occurrence, completeness, rights, obligations, valuation, accuracy -for Inventories
A portion of a client's accounts receivable consists of many small accounts, each of which is not significant. The company has a collection period of approximately one month and cash flows generally correspond to the previous month's sales. As a result, the auditor considers the risk of material misstatement to be relatively low. Which type of accounts receivable confirmation is likely to be used by the auditor for these accounts? a. Negative confirmations b. Positive confirmations c. Open ended confirmations d. Blank confirmations
a. Negative confirmations
In testing management's rights and obligations assertion in relation to inventories, which of the following procedures would the auditor most likely consider most reliable? a. Review consignment agreements. b. Vouch inventory counts to accounting records. c. Trace inventory in accounting records to inventory counts. d. Make inquiries and analyze inventory turnover to identify slow-moving or obsolete items.
a. Review consignment agreements.
Regarding warranty reserves and their associated auditing issues, a. The warranty reserve account can be manipulated to understate income during a good sales year. b. A known decrease in product reliability, with all other factors remaining the same, should lead to a decrease in the warranty reserve account. c. A common fraud scheme known as "channel stuffing" relies on manipulation of reserve accounts, sometimes including the warranty reserve account. d. An inherent risk of warranty reserves is the reliance on outside parties.
a. The warranty reserve account can be manipulated to understate income during a good sales year.
X Company prepares a sales invoice, using a pre-printed sequentially numbered form, upon receipt of a copy of a bill of lading from the shipping department indicating that goods have been shipped. An auditor wishes to obtain evidence that all sales that that were recorded during the period actually occurred. Which of the following procedures would likely be most effective for that purpose? a. Trace entries from the sales journal to sales invoices and bills of lading. b. Trace a sample of receiving reports to the sales journal. c. Trace a sample of sales invoices to bills of lading. d. Trace a sample of bills of lading to the sales journal.
a. Trace entries from the sales journal to sales invoices and bills of lading.
In verifying credits to perpetual inventory records of a non-manufacturing firm, the auditor would be most interested in examining the: a. Vendors' Invoices b. Shipping Documents c. Purchase Orders d. Receiving Reports
a. Vendors' Invoices
Tracing recorded sales transactions to the bills of lading provides evidence about the: a. Billing of all sales transactions b. Occurrence of sales transactions c. Completeness of sales transactions d. Collectibility of sales transactions
b. Occurrence of sales transactions
In testing controls over purchases, an auditor most likely would determine that the person who receives inventory a. Already has advance copies of purchase orders with the quantity of goods to expect. b. Prepares receiving reports for all good received. c. Conducts periodic comparisons of receiving reports to general ledger postings. d. Posts to the general ledger to reflect the receipt of goods.
b. Prepares receiving reports for all good received.
Which of the following is true about the auditors' observations of the client's physical inventory? a. The auditors should segregate damaged and obsolete goods. b. The auditors should supervise the client's personnel. c. The auditors should plan the physical inventory. d. The auditors should evaluate the condition of the inventory.
b. The auditors should supervise the client's personnel.
How to detect kiting
by preparing a schedule of bank transfers for a few days before and after balance sheet date
Which of the following is not an inherent risk of investments in derivative securities? a. Reliance on outside parties b. Technical complexity c. Ease of theft d. Credit Risk
c. Ease of theft
Which of the following procedures would an auditor most likely follow to assess the client's rights and obligations regarding its inventory? a. Review supplier catalogs to estimate the replacement cost of the inventory on hand b. Inspect the inventory on hand c. Examine vendor invoices for the inventory d. Read the financial statements and trace purchases into the purchases journal
c. Examine vendor invoices for the inventory
An opportunity for fraud involving lapping of accounts receivable is more likely when which two duties involving accounts receivable are not segregated? a. Authorization and reconciliation b. Receipt of returned goods and recording c. Opening the mail and recording d. Recording and reconciliation
c. Opening the mail and recording
Which of the following audit procedures would be most effective in providing evidence regarding the existence of cash and cash equivalents? a. Review bank reconciliations to verify amounts. b. Perform analytical procedures to determine if amounts and volume of transactions match expectations. c. Review bank confirmations to verify bank balances. d. Test translation of foreign currency transactions.
c. Review bank confirmations to verify bank balances.
Which of the following will generally not be included in a standard bank confirmation? a. Balances in deposit accounts as of the balance sheet date. b. Balances of outstanding loan as of the balance sheet date. c. The dates on which inactive accounts were closed. d. Agreements related to compensating balances and collateral for loans.
c. The dates on which inactive accounts were closed.
Which of the following is NOT typically considered to be an alternate procedure for handling nonreplies to AR confirmation requests? a. Examine correspondence. b. Examine sales invoices. c. Trace the balances from AR ledger to billing statements. d. Examine any subsequent cash receipts.
c. Trace the balances from AR ledger to billing statements.
Cash includes
checking accounts, petty cash, savings, money market funds, certificates of deposit, savings certificates
Confirmations for A/P are not warranted when...
client possesses external evidence to confirm A/P amount
How to detect lapping
comparison of the details of the daily entries in the cash receipts journal and A/R subsidiary ledger with bank deposits
Assertions tested when confirming payables and unrecorded liabilities
completeness
Search for unrecorded accounts payable ____________ ______
completeness, cutoff -for AP
Controls and Assertions: Use prenumbered shipping and billing documents and account for the sequence. ____________ ______
completeness, cutoff -for AR
Controls and Assertions: Use credit memoranda for authorization of adjustments to sales and receivables. ____________ _________ ________
completeness, valuation, accuracy -for AR
For A/R, what is the most important procedure
confirmations
For effective internal control, the purchasing manager generally should a. Stamp, perforate, or otherwise cancel supporting documentation after payment is mailed. b. Defer to the accounts payable department for authorization of purchases. c. Establish the agreement of the vendor's invoice with the receiving report and purchase order. d. Be responsible for negotiating terms with vendors.
d. Be responsible for negotiating terms with vendors.
An auditor is establishing procedures for testing management's assertions regarding existence in relation to reported investments in marketable securities. The auditor is considering using confirmations or observation. Which of these techniques would be appropriate for obtaining evidence about existence? a. Confirmations Only b. Observation Only c. Neither confirmations nor observation d. Both confirmations and observation
d. Both confirmations and observation
An auditor suspects that certain client employees are ordering merchandise for themselves over the Internet without recording the purchase or receipt of the merchandise. When vendors' invoices arrive, one of the employees approves the invoices for payment. After the invoices are paid, the employee destroys the invoices and the related vouchers. In gathering evidence regarding the fraud, the auditor most likely would select items for testing from the file of all: a. Approved Vouchers b. Receiving Reports c. Vendors' invoices d. Cash Disbursements
d. Cash Disbursements
Which of the following audit procedures is aimed most directly at testing the completeness assertion for accounts payable? a. Footing the list of AP b. Tracing shipping reports after year-end to related customer purchase orders and invoices c. Tracing shipping reports issued on or before year-end to related customer purchase orders and invoices. d. Examining underlying documentation for cash disbursements in the period after year-end
d. Examining underlying documentation for cash disbursements in the period after year-end
Which procedure is an auditor most likely to use to detect a check outstanding at year-end that was NOT recorded as outstanding on the year-end bank reconciliation? a. Prepare a four-column bank reconciliation using the year-end statement. b. Prepare a bank transfer schedule using the client's cash receipts and cash disbursements journal. c. Confirm the year-end balance using the standard form to confirm account balance information with financial institutions. d. Receive a cutoff statement directly from the client's bank.
d. Receive a cutoff statement directly from the client's bank.
X Company prepares a sales invoice, using a pre-printed sequentially numbered form, upon receipt of a copy of a bill of lading from the shipping department indicating that goods have been shipped. An auditor wishes to obtain evidence that all sales that occurred during the period were actually recorded. Which of the following procedures would likely be most effective for that purpose? a. Trace entries from the sales journal to sales invoices and customer purchase orders. b. Trace a sample of receiving reports to the sales journal. c. Trace a sample of sales invoices to bills of lading. d. Trace a sample of bills of lading to the sales journal.
d. Trace a sample of bills of lading to the sales journal.
While auditing inventory, the auditor analyzed the inventory turnover rates and made inquiries of production supervisors and inventory control personnel about slow-moving or obsolete items in inventory. These procedures are designed to provide evidence to support management's assertion regarding: a. Rights and obligations b. Completeness c. Existence d. Valuation and allocation
d. Valuation and allocation
Which of the following is not one of the independent auditor's objectives regarding the examination of inventories? a. Ascertaining the physical quantities of inventory on hand. b. Verifying that inventory counted is owned by the client. c. Verifying that the client has used proper inventory pricing. d. Verifying that all inventory owned by the client is on hand at the time of the count.
d. Verifying that all inventory owned by the client is on hand at the time of the count.
To detect kiting: 1. Compare Book to Book (look for ____________ periods) 2. Compare Bank to Book (look for bank dated ________ book)
different; before
Confirmations satisfy what assertions
existence, accuracy, cutoff
Controls and Assertions: Use appropriate procedures for taking the physical inventory _________ __________ ____________ ______ ______ ___________ _________ ________
existence, occurrence, completeness, cutoff, rights, obligations, valuation, accuracy -for Inventories
Controls and Assertions: Use perpetual records to control inventories _________ __________ ____________ ______ _________ ________ ____________ __________
existence, occurrence, completeness, cutoff, valuation, accuracy, presentation, disclosure -for Inventories
Controls and Assertions: Use budgets and analyze variances from actual amounts. _________ __________ ___________ ______ ___________ _________ ________
existence, occurrence, completeness, rights, obligations, valuation, accuracy -for AR
Controls and Assertions: Use control listed to control cash collections. _________ __________ ____________ ______ ___________ _________ ________
existence, occurrence, completeness, rights, obligations, valuation, accuracy -for AR
What assertion is being tested when observing inventory counts?
existence, occurrence, completeness, valuation
Controls and Assertions: Analyze and follow up on variances from standard costs _________ __________ ____________ _________ ________
existence, occurrence, completeness, valuation, accuracy -for Inventories