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Flashcards in 456 final Deck (32):

what is the nature, timing and extent of substantive procedures determined by?

risk of material misstatement
timing considerations
level of assurance necessary
type of evidence required
complexity of data systems
combination of substantive tests
auditing standards


what are two types of tests of details



what is vouching

taking a balance or transaction from underlying accounting records and verifying it by agreeing details to supporting evidence outside accounting records of the company
tracing - tracking a source document back to underlying accounting records


how do you decided how much of a balance to test?

key item testing
representative sampling


what are the three levels of evidence



what is persuasive evidence

procedures generate amount auditor believes is a reasonable estimate of what balance should be


what is corroborative evidence

it either confirms audit findings from other procedures or supports management representation or decreases scepticism


what is minimal evidence

contribute minimal support for the conclusion


what are the key issues with sales and receivables

1. receivables actually exist and are collectable and adequate allowances have been made for receivables --> existence, valuation and allocation
2. sales are genuine and are neither overstated nor understated --> occurrence. completeness, accuracy, cut-off


what are some inherent risks associated with credit sales transactions

high volume of transactions
contentious revenue recognition issues
cash susceptible to misappropriation
sales adjustments used to conceal theft


what are the key issues of auditing purchases, payables and payroll

purchases are all recorded and not understated --> completeness, accuracy, cut-off
payables that are derived from purchases are fully recorded as a liability --> completeness, valuation and allocation
payroll expenses and associated deductions and related liabilities are properly recorded as liability --> completeness, occurence, existence, valuation and allocation


what are the relevant functions for payroll?

hiring employees
authorizing payroll changes
preparing attendance and timekeeping data
preparing the payroll
recording the payroll
paying the payroll and protecting unclaimed wages


what is the audit objective for inventory?

ensure inventory actually exists, is owned and is properly valued --> existence, valuation, rights and obligations


what are two key functions of inventory

an inventory count
comparison of actual items on hand to inventory records


what are common inventory count procedures

assigning and communicating responsibly


what are three strategies to verify existence of inventory

1. determine inventory quantities using perpetual records if inventory is not to be counted at or close to end of reporting period
-requires low CR
2. determine inventory quantities by a physical count near end of reporting period and adjust balance sheet quantities using count references
-less than high CR
3. determine inv quanitites by a physical count at or within a few days of end of reporting period
-high CR


what are key issues with PPE?

ensuring PPE actually exists, is owned and is properly valued with adequate provision for depreciation --> existence, valuation, rights and obligations


what three types of transactions does the tests of details of transactions cover related to PPE

repairs of maintenance


what is cash comprised of?

cash balances at bank/similar institutions
cash on hand
cash equivalents (highly liquid, convertible to cash within 3 months)


what are the key issues for cash and investments

cash exists and is owned by the clients and all cash transactions at the end of the reporting period are completely and properly disclosed
investments exist, are owned and properly recorded and disclosed and are properly valued --> existence, valuation, rights and obligations


what are the main control procedures for cash

independently performed bank reconciliations
use of imprest accounts


what are the main substantive procedures for cash

audit bank reconciliation
reconcile the balance to the confirmation from the bank


what are five commonly used substantive tests for cash balances

confirming bank balances
confirming other arrangements with banks
verifying bank reconciliations
obtaining and using the subsequent period's bank statement
counting cash on hand


what is lapping

deliberate irregularity, concealing the misappropriation of cash by using subsequent cash receipts to conceal the original misappropriation


three common procedures to detect lapping

confirm AR on a surprise basis at an interim date
make a surprise cash count
compare the details of cash receipts journal entries with the details of corresponding daily deposit slips


what are two reasons investments in other entities are held?

to hold surplus funds or funds earmarked for a future purpose
to secure a long term relationship with the other party


what steps are in the engagement wrap-up

1. review planned procedures for proper and complete execution
2. determine all necessary matters are appropriately considered
3. clear all outstanding review notes, to-do items and incomplete procedures
4. remove all unnecessary documents, drafts, and cleared review notes from file
5. for multi-location engagements, ensure all requested documents have been obtained and reviewed
6. consider materiality level used in audit
7. reconsider assessments of internal control
8. revisit planning documentation to ensure all significant issues identified in planning have been addressed
9. review planned procedures for proper and perform analytical procedures on adjusted financial statements
10. perform review for contingent liabiltiies and commitments
11. perform subsequent events procedures
12. read other info in the entity's annual report for material inconsistencies between audited financial statements and other info provided
13. ensure audit is completed on a timely basis


when should entity record or disclose contingent liabilties

record: measurable and likely and material
disclose: likely and material but not measurable
if it's not likely, don't need to disclosed it


what are subsequent events?

events that occur between year end and date of auditor's report


what are the two types of subsequent events?

type 1 - events that provide additional evidence with respect to conditions that existed at year end (need to adjust)
type 2 - events that provide evidence with respect to conditions that developed after year end (have to disclose)


what are the components of an audit report

1. title
2. addressee
3. opinion paragraph
4. basis for opinion
5. emphasis of matter
6. key audit matters
7. management's responsibility for statements
8. auditor's responsibility for statements
9. other reporting responsibilities
10. name of engagement partner
11. date of audit report
12. auditor's address


what are the modifications to an audit report

emphasis of matter
modified opinion - qualified, adverse, disclaimer of opinion