A4 Flashcards
Which departments are responsible for preparing the sales order, approving the sales order, preparing the bill of lading, and preparing the invoice?
4 Departments
Sales department: Prepares the sales order
Credit department: Approves the sales order
Shipping department: Prepares the bill of lading
Billing department: Prepares the invoice
Which department should approve write-offs of uncollectible accounts?
The treasurer’s department should approve write-offs of uncollectible accounts.
A listing of cash receipts should be sent to which 3 departments?
The cashier, accounts receivable (billing), and general accounting departments should each receive a copy of the cash receipts listing.
What are some common audit procedures related to the revenue cycle?
6 Audit procedures
*Trace a sample of shipping documents to sales invoices and the sales journal (completeness)
*Vouch a sample of sales transactions from the sales journal to the shipping documents (existence)
*Examine sales transactions from shortly before & after year-end for recording in the proper period (cutoff)
*Confirmation of a sample of accounts receivable (existence)
*Testing of the allowance for uncollectible accounts (valuation)
*Read sales-related disclosures to ensure that they are clear and understandable and that all required disclosures have been included ( completeness & presentation)
Compare & contrast positive, negative, & blank confirmations
3 Types of Confirmations to customers
-Positive confirmation:
Customer is requested to return confirmation to the auditor
Should be used when: accounts are large, errors are expected, or items are disputed
-Negative confirmation:
Customer is requested to reply only if amount stated by auditor is incorrect.
Should be used when: combined assessed level of inherent and control risk is low, a large number of small balances are being confirmed, and recipients are not expected to disregard the confirmations.
Blank confirmation:
A positive confirmation that does not include the balance, instead requesting the recipient to provide this information. Blank confirmations provide greater assurance but may result in lower response rates.
In a purchase transaction, which departments are responsible for preparing the purchase order, preparing the receiving report, recording the payable, approving the invoice, signing the check, and mailing the check?
4 Departments
Purchasing department: Prepares the PO
Receiving department: Prepares the receiving report
Accounts payable department: Records the payable & approves the invoice
Treasurer’s department: Signs & mails the check
What documents should be compared before an invoice is approved for payment, and why?
The PO, receiving report, & vender invoice should be compared before an invoice is approved for payment.
This is to ensure that the company does not pay for goods that were not ordered or that were ordered but not received.
What are some common audit procedures related to the expenditure cycle?
4 audit procedures related to expenditure cycle
Audit procedures related to the expenditure cycle might include:
*Performing a search for unrecorded liabilities (completeness)
*Accounts payable confirmations (existence)
*Examination of purchases before & after year-end for recording in the proper period (cutoff)
*Read expenditure-related disclosures to ensure that they are clear & understandable and that all required disclosures have been included (completeness & presentation)
Describe the procedure performed when an auditor is searching for unrecorded accounts payable
The auditor should select cash disbursements made subsequent to year-end and examine supporting documentation (e.g. receiving reports, vendor invoices, etc.). The auditor is looking for items that should have been recorded at the balance sheet date, but were not.
Note: Cash disbursements made subsequent to year-end may be identified by reviewing the cash disbursements journal, subsequent bank statements, or the voucher register.
When might accounts payable confirmations be used, and to whom would they be sent?
Accounts payable confirmations might be used when:
*The system of internal control is weak
*There are disputed amounts
*Monthly vendor statements are not available
They would be sent to vendors with small or zero balances, bc errors often involve unrecorded liabilities
Note: Confirmation of recorded accounts payable will not provide evidence regarding unrecorded liabilities, but confirmations sent to vendors w/zero (or small) balances might provide such evidence.
LAPPING
Delay recording of cash receipts to hide theft of cash
KITING
Describe an auditing procedure that would detect kiting
Kiting is an overstatement of blank balances by transferring cash between banks & reporting the amount in both bank balances at the same time.
The auditor may detect kiting by reviewing each transfer on the bank transfer schedule.
The auditor is looking for a disbursement date per books after year-end and a receipt date before year-end
What ae the primary audit procedures used to test the existence, completeness, and valuation of cash?
Primary audit procedures include:
- Standard bank confirmations sent to all banks w/which the client has done business during the year
*Testing of the year-end bank reconciliation
What are some common audit procedures related to the inventory cycle?
Audit procedures related to inventory might include:
*Observing the physical inventory count (existence)
*Performing test counts & tracing into the inventory report (completeness)
*Verifying appropriate presentation & disclosure (classification & presentation)
*Inquiring about obsolete or damaged goods (valuation)
*Performing cutoff testing of purchases & sales (cutoff)
Testing purchase & sales for cutoff is often associated w/obtaining evidence in the purchases & sales cycles.
When transaction are purchases or sales of inventory, the auditor also obtains evidence over the cutoff of inventory.
What are some common audit procedures related to the investment cycle?
Audit procedures related to long-term investments might include:
*Confirmation of securities held & unsettled transactions (existence)
*Physical Inspection & count of securities (existence)
*Evaluation of presentation & disclosure in the FS (classification & presentation)
*Recomputation of gains, losses, amortization, dividend income, & interest income (valuation)
*Review of the minutes of board of directors’ meetings (rights and obligations, and occurrence)
*Inquiry of management (supplemented by a representation letter) regarding intent & ability to hold versus sell securities (classification)
