Flashcards
Audit 2 test 1
Cards in this deck (31)
- 1Three broad objectives of internal Controls1. Improve effectiveness of management decision making and efficiency of business processes. (operating)
2. To increase reliability of information. (reporting)
3. To foster compliance with laws, regulations, and contracts. (compliance) - 2COSO cube right side1.Entity
2.Division
3. Operating Unit
4. Function - 32 things controls cannot prevent1. Collusion
2. Elimination of all fraud - 4Risk Assessment ObjectivesObjective Setting
Event Identification
Assess the risk
Respond to risk (4 ways) - 5Types of Controls(preventative/detective) and (automated/manual)
- 6Management ControlsTop level review
Direct Activity by management
Competitive bench marking - 72 ways a control is deficient1. Not there, or designed improperly
2. Not implemented correctly - 8Compensating ControlsControls that help deficiencies in other controls.
Supervision is the best compensation control - 94 Ways to gain an understanding of internal controls1. Written Narrative
2. Flowchart
3. Control Questionnaire
4. Walkthrough (best) - 104 Ways substantive testing could fail1. Inadequate planning
2. Procedural error
3. Sampling Omission
4. Improper Corrective actions - 11Transaction Assertions1. Occurrence
2. Completeness
3. Cutoff
4. Accuracy
5. Classification - 12Account Assertions1. Existence
2. Completeness
3. Valuation
4. Rights and Obligations - 13Presentation and Disclosure Assertions1. Occurrence and Rights and Obligations
2. Completeness
3. Accuracy in Valuations
4. Classification and Understandability - 14Audit ProgramsThe objective of audit programs is to obtain the sufficient appropriate evidence that provides the auditors with reasonable assurance over managements assertions. This is done before internal control testing. If the outcome is different than expected the audit program will be redone
- 15Revenue recognition Criteria1. Persuasive evidence of an arrangement exists.
2. Delivery has occurred or services have been rendered.
3. The seller's price to the buyer is fixed or determinable
4. Collectability is reasonably assured - 16Sales Process1. Purchase order prepared by customer.
2. Sales order made by client and sent to credit department for approval.
3. approval authorizes shipment and shipping will release goods and prepare bill of lading.
4. Sales invoice sent to customer. Sales invoice separately posted to A/R ledger - 17Collections (cash receipts) process1. Check and Remittance advice received (two people there to open the mail)
2. Check used to create cash prelist and remittance advice filed away.
3. Payments recorded in the cash receipts journal. - 18What document is used to evidence a sales return.A credit memo and possibly a separate inventory ticket.
- 193 performance indicators in an entity level control1. Financial Performance
2. Process Performance
3. Market Performance - 20Dual purpose testsTests that test both the effectiveness of controls and the accuracy of transactions.
- 21If we do not confirm A/R what do we doExamination of subsequent cash receipts
- 22Sampling RiskThe risk that the sample chosen is not representative of the entire population
- 23Non-Sampling RiskThe risk that the auditor miss-performed some aspect of the sampling process
- 24The Sample Size will depend on... (two things)1. The assertion being tested
2. Assessment of Risk - 25Three main issues to be considered when sampling.1. The number of transactions or items to examine. (sample size)
2. The actual transactions or items to examine. (type of evidence)
3. Interpreting the results of the sample
(results) - 26Stratified SamplingUsing multiple sampling methods for different populations
- 27Things to consider during judgemental Sampling1. Magnitude of a transaction
2. Date of transaction
3. Parties to the transaction
4. Nature of the underlying assets and liabilities - 2812 steps of Attribute Sampling1. Identify the purpose of the test
2. Define population and sample unit
3. Define deviation conditions
4. Specify the TDR
5. Find ARO (Acceptable risk of overeliance)
6. Estimate EDR
7. Determine Sample Size
8. Select the sample method
9. Perform the audit procedure and document results
10. Generalize sample results to the population. Find UDL and if it is larger than TDR control doesnt work. P=(deviation and ARO)/sample size
11. Analyze individual deviations
12. Conclude whether or not the assertion is acceptable - 29ARIAAcceptable risk of incorrect acceptance
- 30Transactions that arise from revenue cycle1. Sales
2. Collections
3. Returns
4. Bad Debt Estimation
5. Bad Debt write off - 31—
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- Flashcards on Audit 2 test 1, created by Griffin Hyde on 02/04/2019.
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- Griffin Hyde
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