Ch. 11 + 12 Class Notes Flashcards Preview

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Flashcards in Ch. 11 + 12 Class Notes Deck (44):
0

Litigation is in consolidated statements if?

2) When is it footnoted?

Probable and estimable

Either probable or estimable

1

Audit completion date

Last date if fieldwork

Last day out at client's

2

What is included in written representation letter? 2

Holds management responsible for financial statements

Management is responsible for internal control

3

Auditor should update testing of internal control at...

Year end

4

When should the auditor perform interim testing of internal control?

Around September

5

4 situations that would cause going concern situation?

1 limited financing
2 negative cashflows
3 loss of key franchise
4 loss of key customer

6

Who is responsible for making adjustment journal entries?

The client

7

Who is responsible for making proposed adjustment entries?

Auditor

8

Audit documentation

Evidence gathered in work papers to support claims

9

How often does audit documentation review occur?

Reviewed on an ongoing basis

10

Management letter, is a letter from auditor to the client on how management can...

Improve efficiency and effectiveness of operations

11

Cycle counts

Client doesn't count all inventory at year end

They count quarterly

12

Analytics

Relationships btw/financial data

Essential for planning

Ex. Determining allowance for doubtful accounts is lower than it
should be

13

When are analytics required?

At beginning and end of audit

14

Clearing account

Put stuff in and take stuff out without knowing what it's about

15

Earnings management: allowance for doubtful accounts

If you lower allowance for doubtful accounts, that decreases
Expenses and raises earnings

If you raise allowance for doubtful accounts that raises expenses
And lowers earnings

16

Earnings management: Asset useful life

If you extend useful life of asset, you lower depreciation exp.
And increase earnings

17

When is change in allowance for doubtful accounts estimate justifiable? 2

1 Change in credit policy

2 change in economic conditions

18

4 examples of accounting estimates?

1 warranties
2 allowance for doubtful accounts
3 litigation
4 useful life

19

When is attorney letter sent?

Is there a charge involved?

Sent toward end of audit fieldwork

Attorney charges client for letter

20

What does a company getting a line of credit show?

Sign of health

21

What expense account is vouched?

Legal expense account

22

Unasserted claims

Not filed but possible future claim against client

23

Written representations are signed by...

What date is included?

Management

Includes date of auditors' report

24

Going concern issue, when does auditor share this with the client?

When it is found

25

When are proposed adjusting entries made?

During the audit

26

Roll over method

Considers only current period ($7,410 p. 475)

27

Iron curtain method

Considers cumulative periods ($25,410 p. 475)

28

Where are uncorrected misstatements communicated?

In management letter

29

Audit documentation review

Audit supervisor checks whether explanations are understandable

30

Who reviews the senior's work?

Manager

31

What 2 common procedures are performed for subsequent events?

1 read minutes

2 review interim financial statements

32

Subsequent events footnote example

On January 6th, flood causes $1 million in damage,

where $900,000 is reimbursed by insurance company

33

Dual dating shouldn't have...

A negative connotation

34

If report date is changed instead of to dual date...

More work has to be done

And expenses increase

35

Give 2 examples that would make a bank a major stakeholder in a private company?

1 requires company to have an audit

2 uses company's inventory as collateral

36

Communication with those charged with governance, when its it done?

Throughout audit

37

Audit committee doesn't have...

Day to day contact with managers

They rely on auditors to fill them in

38

What does proxy statement show?

Shows compensation of board of directors for being in different committees

39

What 2 items should be reported at the top of the management letter?

1 reportable conditions

2 significant deficiencies

40

Auditors should keep management letter on file to see if...

Suggestions are implemented by management next year

41

What items are included in the engagement letter? 6

1 level of service
2 statements audited
3 fees
4 dates of engagement
5 list of PBCs (prepared by client)
6 caveat of unforeseen circumstances (to terminate engagement)

42

Acceptance letter

Engagement letter countersigned by client and sent back to auditor

43

Auditors can try to sell services in...

Management letter