Auditing Test 3
Step _______purchase order is received from the customer, the client fills out a sales order which goes to the credit department for approval to make the sale. the treasury dept releases the credit, authorization
1
Step ____ approved sales order goes to warehouse and goods are transferred to shipping and a shipping document is created which goes to the customer. you can now recognize the sale. Custody
2
Step _____ billing customers and accounting with a sales invoice and recognizing revenue. Recording
3
Step ____ collecting and depositing cash
4
Upon receipt of customers' checks in the mail room, a responsible employee should prepare a remittance list that is forwarded to the cashier. A copy of the list should be sent to the
Accounts receivable bookkeeper to update the subsidiary accounts receivable records.
Observe client comparing shipping quantities to quantities recorded as sold is used to test the assertion of __________
Accuracy of revenue
Vouch prices to approved price list is used to test the assertion of ______
Accuracy of revenue and accounts receivable
____ selects occurrences of key controls for the audit team to examine using tests of controls.
Attributes sampling
________of transactions comes from credit checks prior to approval of sale, and pricing, write offs. they should all be the same people. Credit dept and treasurer.
Authorization
________ is a shipping document prepared and sent with a common carrier like fed ex
Bill of lading
In preparing for the audit of cash, the auditors perform analytical procedures concerning cash balances, _________ would be the best source of information for use in the estimate of cash
Cash budgets.
_____ is a step involved with determining the upper limit on misstatements is ordinarily performed earliest. .
Determine the audited value of the item and compare it to the recorded balance
__________ is used when the internal control is so important you can't tolerate a deviation
Discovery Sampling
_______is a type of fraud that involves an employee misappropriating an employer's money or property entrusted to the employee's control in the employee's normal job.
Embezzlement
_______is hwere customer doesn't agree with the confirmations sent. Most common is already paid
Exception
Accounts Receivable
Existence, completeness and valuation
The _________ determination is based on prior audits for recurring engagements or a pilot sample of controls for first year with a direct relationship to sample size
Expected population deviation rate
_______ in the selection of audit procedures to be performed by auditors include: Varying the timing of the audit procedures, selecting items for testing that have lower amounts or are otherwise outside customary selection parameters, and performing audit procedures on an unannounced basis.
Incorporating elements of unpredictability
________might be detected by auditors' cutoff review and examination of sales journal entries for several days prior to the balance sheet date
Inflating sales for the year
__________is the delayed recording of cash receipts to cover a cash shortage.
Lapping
Assumes each item in population has a similar balance. Estimates recorded balance by multiplying number of components by average audited value
Mean per unit
_________ sampling used in auditing, defines the sampling unit as an individual dollar in an account balance, auditor selects individual dollar for examination
Monetary unit sampling
_________ are most appropriate when the assessed level of risk is low, dollar balances on accounts are small, and the auditor believes recipients will give consideration to the confirmations.
Negative confirmations
__________ client has amounts owed by customers, contact the customer to gather evidence, do you owe the company the amount they say you do. Agree, send it back, disagree with explanation.
Positive confirmation
Immediately upon receipt of cash, a responsible employee should
Prepare a remittance listing.
___________is an effective audit procedure that an auditor might use to detect kiting between intercompany banks
Prepare a schedule of the bank transfers.
The audit team controls _______ in an attributes sampling application, but not the _______
ROO (risk of overreliance); ROU (risk of underreliance)
To determine whether accounts payable are complete, auditors perform a test to verify that all merchandise received has been recorded. The population for this test consists of all_____
Receiving reports.
______is NOT a main factor influencing the sample size in an attributes sampling application
Risk of underreliance
_______ is a separate account for each customer.
Subsidiary ledger
_________ are vouch recorded sales to supporting documentation, trace bills of lading to recorded sales, test sales cut off by examining invoices and shipping documents prior to year end
Substantive procedures for revenue
The projected misstatement is determined by multiplying the sampling interval by the _______
Tainting percentage.
the auditor consider to be an incompatible operation if the cashier receives remittances and ___
The cashier posts the receipts to the accounts receivable subsidiary ledger cards.
____could prevent a paid disbursement voucher from being presented for payment a second time
The official signing the check should compare it with the voucher and should stamp "paid" on the voucher documents.
_______ is one of the most important internal controls vendor invoice, receiving report, purchase order also known as the voucher package
The three way match
When evaluating the results of an MUS application, the audit team should compare the upper limit on misstatements to the
Tolerable misstatement.
________is not used in determining the upper limit on misstatements
Tolerable misstatement.
_________ starts at receiving reports and goes towards the journal
Trace sampling
The _______ is the sum of the sample rate of deviation and the allowance for sampling risk.
ULRD
The interpretation of the _____ in an attributes sampling application is the estimated rate of deviation in the population with probability equal to the risk of overreliance that the population deviation rate is higher.
ULRD
______would conceal this defalcation and be least likely to be detected by an auditor when cash receipts from sales on account have been misappropriated
Understating the sales journal.
If the _______ is less than the _______, the audit team would conclude that the account balance is fairly stated.
Upper limit on misstatements; tolerable misstatement.
_______ can be used to estimate amount of misstatement and true account balance
Variables sampling methods
_______is used to establish support for recorded amounts.
Vouching
auditors' primary concern with respect to liabilities resulting from the purchasing system is that ___________ are not materially understated. this is listed under the ________ assertion
accounts payable; completeness
A purchased item listed on the monthly vendor statement should be included in the accounts payable. If it cannot be traced to the ________ record, the vendor account will be _________.
accounts payable; understated
Number one test for __________ is confirming balances with customers unless the balance is immaterial, confirmation would be ineffective, other procedures to allow you to gather without confirming assessed level of risk of material statement is low
accounts receivable
The total of the subsidiary ledger account _________balances should equal the balance of the controlling account, general ledger
accounts receivable
When a sample of customer _________ is selected for vouching debits, auditors will vouch them to Sales invoices with shipping documents and customer sales invoices.
accounts receivable
When auditing the revenue and collection cycle, auditors normally select balances to confirm from the _________
accounts receivable listing
when auditing cash you _____ where you trace to cash receipts journal and vouch to cutoff bank statement
add deposits in transit
when you audit cash and have to _________ where you inspect bank/credit memo and audit for reasonablemess. Examine relevant supporting documents
add/subtract other debit/credit memos
The search for unrecorded liabilities generally depends upon using accounting records created in the period __________
after the year end
The upper limit rate of deviation - the sample rate of deviation =
allowance for sampling risk
The risk of overreliance results in ______ loss.
an effectiveness
It is usually best to have an anonymous employee hotline responded to by ______.
an outside third-party agency
Obtaining more reliable information, performing procedures close to year-end, and applying computer-assisted techniques to all items is a way that audit procedures can be modified to address ________
assessed fraud risks
Performing tests of controls to determine the operating effectiveness of internal control and assess control risk, and to determine the extent to which some characteristic exists within a population of interest is done using ______
attributes sampling
The risk that an unqualified opinion will be issued on financial statements that contain a material misstatement is the definition of ______ risk.
audit
when auditing cash you have to _________where you confirm information directly from the bank and agree amount to cutoff of the the statement
audit the balance per bank
Legal fees, misc expense, maintenance repairs and professional fees are accounts that ________
auditors always want to look at
to ______ when auditing cash you foot the entire reconciliation for matematical accuracey and trace the amount to the trial balance.
balance per books
_____ supports bank reconciliation and can be used to compare date deposit recorded on book versus bank
bank statement
The auditor assess inherent risk to determine where a material misstatement could enter the process ______ the consideration of any internal controls.
before
________ positive confirmation where the dollar amount is not provided. Fill in the amount you owe. Forces the customer to look something up. response rate is lower
blank confirmation
________select contiguous units. not random
block selection
_______ are used to test for payees, amounts or dates that do not match chas dispbursements journal
canceled checks
The person who authorizes _________ should not have custody of checks or be in charge of record keeping for payment or bank reconciliations
cash disbursements
______ are where detailed entries for all payments of cash are kept
cash disbursment journal
Adjusting and correcting entries that can result from the bank account reconciliation are found in the_____
cash receipts journal
_________ are where detailed entires for all recepts of cash are kept
cash receipts journal
If cash is received but there is no invoice, you should determine if __________
cash relates to disposals of property and other fixed assets.
The crucial link of the evidence to the criminal suspect that bears directly on the relevance of evidence is referred to as the
chain of custody
The standard deviation of error is considered in ______ but not in ______
classical variables sampling; monetary unit sampling
Trace posting of intercompany sales, sales returns, etc. to sales is used to test the assertion of _____
classification of accounts recievable
A _________ must be supported by the control environment, helps send the right message from the top, and is more likely to be supported if the Board chairman follows it
code of conduct for employees
Auditors review items in the pending order file for evidence of the _______ of recorded sales and accounts receivable.
completeness
When auditing account balances of liabilities, auditors are most concerned with management's assertion about _____
completeness
the most relevant assertion for accounts payable is ________. look at events that occur. tracing is the best way
completeness
Prenumbered documents are important in testing _____ assertion and the______ assertion
completeness; occurence
If the audit team established a low acceptable ______, the corresponding tolerable rate of deviation would also be low.
control risk
A __________ may be the audit team's first indication of fraud.
control violation
The age of accounts is an indication of _____
credit losses.
Verifying the dates on sales documents helps reduce the risk of misstatement related to the _______ assertion of revenue.
cutoff
Trace shipping documents to sales invoice date. Check FOB terms this is used to test the assertion of _____
cutoff of revenue
If cash is received that is less than the invoice amount _______
determine if there were unrecorded sales returns
In attributes sampling, the characteristic of interest is a_______ condition.
deviation or exception
Adjusting and correcting entries that result from bank reconciliations are found in the cash ______ journal.
disbursements; receipts
When deviations from controls are very critical yet expected to occur at a relatively low rate, the audit team may use____
discovery sampling
Auditors must gain an understanding of internal controls that are in place to mitigate assessed fraud risk and, at a minimum,______.
document that understanding in the workpapers
In ______, you must write a conclusion at the bottom, document the parameters used, description of method, sample items, measurement of sampling, ULRD
documentation
__________ is a strong internal control where 2 people handle cash at all times
dual custody
An audit test that provides evidence on both controls and relevant assertions is called a(n)________
dual purpose procedure
Auditors must obtain evidence supporting the reliability of controls surrounding the Confirmation (Confirmation.com) process for __________through Confirmation (Confirmation.com)
electronic cash confirmations
_________ generally includes a cover-up, usually involves some type of falsification, and is also called misappropriation of assets
employee fraud
________ is where you evaluate the sample results
evaluating
Account receivable primary assertion is _________
existence and valuation
Auditors usually suspect some level of deviation in the client's internal control activities which is referred to as the________
expected population deviation rate
the level of deviation suspected in the internal controls, based on prior engagements or pilot sample
expected population deviation rate
an insurance policy that covers cash imbezzlement losses are called
fidelity bonds
The possibility of detection can be an effective _____deterrent and a control violation may be the audit team's first indication of _____
fraud
The three conditions where ____are likely to occur are motivation, opportunity and rationalization
fraud
_______ select times in a nonsystematic manner. not random
haphazard selection
Because detection risk is lower for positive confirmations than negative confirmations, a positive confirmation is more likely when inherent risk is _______
high
ULRD is ______or equal than tolerable rate of deviation you would reduce reliance on internal control and increase control risk you would expand your sample size and perform additional tests of controls
higher
attribute sampling
how many times something is present or not
No cash received but invoiced
identify the invoices that matched those in the open accounts receivable table as of the end of the year.
The first step in the attributes sampling process is to ______.
identify the objective
If cash is received that is more than the invoice amount you should determine ________
if there were unrecorded sales
When don't we have to confirm accounts receivable if the balance is ______ or _______ and when the risk of material misstatement is low.
immaterial; ineffective
Invoice dated 1/20 for cleaning services for the month of December; not included in AP as of 12/31 is ______
improperly EXCLUDED from AP
Invoice received 12/30 for January temporary workers; included in AP as of 12/31 is _________
improperly included in AP
Revenue collection cycle
includes sales revenues, receivables and cash receipts
The audit team must consider the risk of _____ in determining sample size in monetary unit sampling.
incorrect acceptance
When making a decision about the dollar amount in an account balance based on a sample, the audit team considers the risk of ______to be more serious than the risk of incorrect rejection because the incorrect acceptance decision impairs the effectiveness of the audit.
incorrect acceptance
If the calculated ULRD exceeds the Tolerable rate of deviation, the audit team should _______ control risk and ______
increase; substantive procedures should be adjusted accordingly
According to the FASB Statement of Concepts, expenses may be recognized when they are ______.
incurred, allocated to future period (depreciation), matched to revenue
Audit risk is manifested when a material misstatement enters the financial reporting process, which is known as ______ risk.
inherent
The risk of material misstatement is a combination of_______ and ______
inherent and control risk
When an audit team traces a sample of shipping documents to the related sales invoice copies, they are trying to find relevant evidence that shipments to the customers were ______
invoiced
In attributes sampling, the characteristic of interest ______.
is a deviation condition
Fraud issues in the purchasing department include the risk of ______.
kickbacks, fictitious invoices, misdirected purchases
________ is the deliberate floating of funds between tow or more bank accounts to make it appear that more cash is present and available, aka playing the float
kiting
_________is detected by a schedule of interbank transfer last five days of the year to see how the accounting was done.
kiting
Separation of duties between receiving cash and posting the accounts receivable ledger most likely would deter _____
lapping of collections from customers
An audit team would most likely examine the detail support for charges to _________ to determine potential litigation.
legal expense
_________ is where payments are remitted by customers to external location (usually a bank)
lockbox arrangement
ULRD is __________or equal than tolerable rate of deviation you would rely on internal control as planned and maintain control risk at planned levels.
lower
Personality red flags that may be indicative of fraud are most easily detected by ______.
managers
When completing a fraud examination auditors should ______.
mark the evidence on a separate tag or page
an internal control activity that could prevent a paid disbursement voucher from being presented for payment a second time is _______
marking them PAID
One of the primary advantages of ______ is the fact that the sample selection automatically achieves high-dollar selection and stratification.
monetary unit sampling
sampling risk can lead to two types of erroneous conclusions, in the case of a test of controls, that controls are _________
more or less effective than they actually are.
________ my client says you owe money, if it is correct, do not return confirmation. If it's not correct, send it back. less reliable evidence. Can use if rmm is low and other evidence is being gathered, population has to be a large number of small homogeneous receivables, low return expected, not aware of any customer circumstances to disregard request.
negative confirmation
________ is not doing a good audit, any error that you make while doing sampling that is not related to statistics, determine statistics wrong, mathematical problems. by better planning, training and better supervision
non sampling risk
The risk that the audit team's sample provides an incorrect conclusion for reasons other than the representativeness of the sample, is known as__________
nonsampling risk
sample rate of deviation
number of deviations/ sample size
The first procedure in an audit of cash is to _________ for each cash account and audit them
obtain a bank reconciliation
Revenue
occurence, completeness and cutoff
Primary assertion for revenue is _____
occurrence
Failure to count inventory on a regular basis provides ______ to commit fraud.
opportunity
Incentive/pressure, attitude/rationalization and _______ are the conditions that make up the fraud triangle
opportunity
The appropriate risk _______ is based on the planned level of control risk.
overreliance
When determining sample size, auditors consider the risk of ______.
overreliance
_________ is where you determine the sample size, select the sample items, and measure them
performing
Increasing the level of control risk, performing additional substantive procedures, or expanding the sample are all appropriate responses if the sample evidence does not support the ______
planned level of control risk.
___________ is where you determine the objective of sampling, define the characteristics of interest and define the population
planning
The ______ is the set of all items about which a conclusion is desired.
population
all potential applications of the control during the period examination is the definition of the ________
population
The _______ determination is based on number of applications of control to transactions with a direct relationship with sample size
population size
sampling interval=
populations size/ sample size
Systems may automatically produce customer invoices, but billings will be incorrect if the ________ is incorrect.
price list master file
Information required for business segment disclosures is provided by sales classified by ______.
product line
Invoice dated 1/5 for January security protection; not included in AP as of 12/31 is _____
properly excluded from AP
Invoice dated 12/20 for maintenance services and unpaid as of year end; listed in AP at 12/31 is _______
properly included in AP
It is suggested that there will be some expected population deviation rate under the concept of
reasonable assurance
Increasing the tolerable rate of deviation will _____ the sample size.
reduce
________ can be used to look for potential error or fraud due to unusually high or low volume.
region
When the upper limit rate of deviation is higher than the tolerable rate of deviation, the audit team reduces ________ and increases _______.
reliance on internal control; control risk
When the upper limit rate of deviation is less than or equal to the tolerable rate of deviation, the audit team______
relies on internal controls as planned and maintains control risk as planned
for cash recepts reconcile_______ daily
remittance listing, total receipts posted, deposit slip
__________ we rejected a balance that was correct. efficiency issue
risk fo incorrect rejection
______ is accepting an account balance that is misstated.
risk of incorrect acceptance
The _______ can ultimately result in the audit team's failing to reduce audit risk to acceptable levels.
risk of overreliance
The __________ occurs sample indicates controls are functioning effectively, or not functioning effectively. when the risk of assessing control risk too low.
risk of overreliance
the ________ occurs when sample indicates controls are not function effectively. Risk of Assessing Control risk too High
risk of under reliance
The _______ file can be checked for sales recorded before shipment and fictitious sales
sales detail (journal)
_____ can be used to look for potential error or fraud due to unusually high or low volume.
sales employee
Sales are normally recorded on the date of the _____
sales invoice
Dividing the number of deviations noted in the sample by the sample size is the calculation of the ______
sample rate of deviation
Dividing the number of deviations noted in the sample by the sample size is the calculation of the _________
sample rate of deviation
When you don't send confirmation to each customer, you are using_____
sampling
If the logical unit (component) selected for examination using monetary unit sampling, is larger than the ______ the projected misstatement would equal the actual misstatement
sampling interval
The possibility that the opinion of a group of people contacted about a issue differs from opinions of the entire population is referred to as
sampling risk
______ is the risk that a sample is not representative of the population
sampling risk
__________ is the risk that the auditors conclusion based on a sample may be different from the conclusion if the entire population were subjected to the same auidt procedures
sampling risk
is the risk that sample differs from population
sampling risk
set of procedures designed to yield audit evidence of liabilities that were not recorded in the reporting period
search for unrecorded liabilities for the completeness assertion
The physical representation of the population is the frame of reference the audit team uses in ______.
selecting the sample
The person who authorizes payments should not be in charge of bank reconciliations in order to ensure proper _____ of _____
separation; duties
__________ is an approach to sampling that has a random selection of the sample items, and the use of an appropriate statistical technique to evaluate sample results including measurement of sampling risk
statistical sampling
must use unrestricted random selection or systematic random selection with______
statistical sampling
Audit processes to gather evidence on the assertions in account balances are called
substantive procedures
over-reliant on internal controls means you don't do enough _______ This is a big risk
substantive procedures
under reliant on internal controls means you do too many _____
substantive procedures
when you audit cash you ______ and vouch to cash dispursements journal, then trace checks cleared from cutoff bank statment
subtract outstanding checks
where you bypass a fixed number of items in population, selecting ever nth item
systematic random selection
_______ is immateriality for the account
tolerable misstatement
In determining the _________, the audit team should consider (1) the planned assessed level of control risk and (2) the degree of assurance desired by the audit evidence in the sample.
tolerable rate of deviation
__________ is the maximum rate of deviations permissible without modifying the assessed level of control risk
tolerable rate of deviation
The ______ and _______is based on the level of control risk with an inverse relationship with sample size
tolerable rate of deviation; Sampling risk
If the _____ exceeds the _____, the audit team would decide to rely on internal control as planned and maintain control risk at planned levels.
tolerable rate of deviation; ULRD.
All signed checks must be reviewed and compared with supporting documentation by the __________before mailing would best protect against the preparation of improper or inaccurate cash disbursements
treasurer
The starting point for selecting accounts for confirmation is the accounts receivable ______.
trial balance
An unexplained decrease in the ratio of gross profit to sales may suggest ______
unrecorded sales
is where you select items based on random numbers matched to items in population
unrestricted random selection
A conservative estimate of the population rate of deviation that allows the audit team to control exposure to sampling risk to acceptable levels is the ______
upper limit rate of deviation
ULRD is sample rate of deviation + allowance for sampling risk
upper limit rate of deviation
_________is a conservative estimate of the population rate that allows for sampling risk that consists of sample rate of deviation and allowance for sampling risk.
upper limit rate of deviation
Performing substantive tests of details to provide the necessary level of detection risk and evaluate the fairness of an account balance or class of transactions is done using ____sampling.
variable
__________ is used to estimate the amount of value of a population, estimate the misstatement, recorded balance and compare. Substantive procedure.
variable sampling
several departments are usually required to approve a _______
vendor
Cancellation of ________ by stamping them PAID prevents the voucher from mistakenly being paid a second time.
vouchers
___________starts at the journal and goes towards receiving reports
vouching
The auditor selects examples of a transaction and traces them from initial receipt to the recording in the accounting records when performing a(n)
walkthrough