Brainscape's Knowledge GenomeTM


Top Flashcards (Certified)
All Flashcards

Audit > Ch 6 And 7 Class Notes > Flashcards

Ch 6 And 7 Class Notes Flashcards

0
Q

White collar crime

A

Committed by management

Management can override controls

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
1
Q

Lack of separation of duties causes…

A

Weak internal controls

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What heightened awareness of fraud?

A

SOX

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Fraud prevention

A

Segregation of duties

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Collusion

A

2 people agree to rip off company

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

3 questions auditor should ask employees about code of conduct

A

1 does it exist?
2 is it enforced?
3 do you know what’s in it?

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Job description

A

Responsibilities of position

Good internal control

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Forced vacation

A

Example of internal control

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What control should organization have in place going into next year?

A

Budget

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What should you do when you receive order without a packing slip?

A

Have receiving employees count items received

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Lapping

A

Employee steals payment and applies second payment to first

Account

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Where does the auditor trace the deposit slip?

A

To the bank account

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Audit trail includes? 3 things

A

1 Receipt of cash
2 custody over it
3 deposit into bank

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Observation of controls is…

A

Not enough for assessment

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Restrictively endorsed

A

FDO = for deposit only

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Voucher packet

A

All supporting documentation to support writing a check

Ex. Copy of receiving report, copy of invoice from vendor

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Vouching is a typical…

A

Staff accountant job

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

How does auditor find out who authorized signers are?

A

By asking client

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Checks prenumbered and accounted for

A

In bank statements or in transit

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Bank reconciliation

A

Difference between account balance and bank statement

Transactions client only knows about that bank doesn’t know and
Vice versa

Ex. Outstanding checks, company doesn’t know about interest received in bank account

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Footed

A

Added up

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

Payroll balance = 0, why?

A

Because impressed account

Tracks how much deposited and taken out

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

Check kiting

A

Cash appears in 2 places at once, matter of timing

Less of problem because updated instantaneously online

Ex. Move $100 from account A to account B and both accounts
Show the $100

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

Proof of cash is usually used for…

A

Smaller clients

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Risk of cash business: completeness
Can't audit cash that's not been recorded
25
Order of revenue and collection cycle 4 things
1 customer order 2 grant credit 3 ship goods 4 record transaction
26
Entry to allowance for doubtful accounts
Bad debt exp. xxx | Allowance for doubtful accts. xxx
27
What period is bad debt expense effective?
Effective during period of entry
28
Matching principle
Try to match revenues with expenses
29
3 types of confirmations auditor sends out
1 positive confirmation 2 negative confirmation 3 blank confirmation
30
How do you make sure receivables are collectible at year end?
Link cash payment in January with A/R balance at year end
31
Confirms get mailed back to...
Auditor
32
What do inherent risks related to revenue and collection cycle focus on?
Improper revenue recognition
33
Plausible Reasons gross profit may fall
1 input prices rise without passing cost to customer 2 increased competition decreases sales price, while cost stays The same 3 drop most profitable product line
34
Dropping the most profitable product line is an example of
Product mix change
35
When a client gives an inaccurate answer (ex. "Gross profit decreased because sales price increased") what should you ask client?
"Can you explain this?"
36
What is it good to compare analytics too?
Budget/forecast
37
Who sets control risk?
Auditor
38
What is an example of an account that naturally has low inherent risk?
Allowance account
39
You must get more evidence when detection risk is...
Low
40
You can get less evidence when detection risk is...
High
41
Is detection risk mentioned in the audit report?
No
42
3 example of improper revenue recognition
1 cutoff 2 bill and hold 3 channel stuffing
43
3 inherent risks in revenue and collection cycle
1 improper revenue recognition 2 returns and allowances 3 collectibility of receivables
44
Bill and hold example
Bill customer with standing order in January in December Don't ship inventory until January
45
FOB Destination
Title doesn't transfer to customer until reaches customer
46
What do you need to make a 3rd party give a false confirmation?
Collusion
47
Monthly statement
Statement of customer balances
48
How can a client show auditor evidence that an account on an aged trial balance is still collectible?
Show documented correspondence between client and customer
49
Earnings management: allowance for doubtful accounts
In good year overstate allowance for doubtful accounts and Decrease it in lean year while decreasing bad debt exp. Thus increasing earnings
50
When testing occurrence vs. Completion, one must...
Test in opposite direction
51
Completeness test
Trace from shipping documents to sales journal
52
Occurrence test
Vouch from sales journal to shipping document
53
Is revenue recognized during earnings management of allowance for doubtful accounts?
No
54
Customer tracks balances by voucher/invoice
Get slow response time for confirmation
55
60% coverage of $1,000,000 A/R means?
$600,000 A/R confirmed
56
Blank confirmation
Auditor doesn't fill in balance amount when sends to customer
57
When should auditor use blank confirmation?
When recipient is likely to return positive confirmation without Verifying accuracy of information
58
What is a positive confirmation sent on? Who is it sent too? Who is it returned too?
Sent on clients letterhead to customer Returned to auditor
59
What should an auditor do when they send out a positive confirmation and don't hear back?
Need to follow up with customer by phone or email And document response
60
Subsequent cash receipt
Customer paid client after December 31st
61
If you receive a confirm and there's a difference in balance you should...
At least document difference as immaterial or follow up If you do nothing this is sloppy auditing
62
Client representation letter AKA Management Representation Letter When is it written? What does it include? 3
1 signed at end of audit 2 signed by management 3 letter states management has given every bit of info auditor Asked including related party transactions
63
Why might the days sales ratio increase?
Because client loosened credit policy
64
Higher sales in January may be caused by what?
Channel stuffing

Audit (36 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2025 Bold Learning Solutions. Terms and Conditions