ACCT 3222 Audit Final Exam with accurate detailed solutions || || || || || || || ||
What assertion is of most concern when auditing sales/accounts receivable?
|| || || || || || || || ||
· Sales:
||
o occurrence (income statement assertions)
|| || || ||
§ Facing fictitious sales
|| || ||
o Next most important: cutoff
|| || || ||
§ Recording revenue in wrong period
|| || || || ||
· Accounts Recievable (goes on balance sheet)
|| || || || || ||
o Existence
||
§ Fictitous AR (connected to if sales was fictitious)
|| || || || || || || ||
Auditing the revenue process will look different audit to audit bc.... || || || || || || || || || ||
· Will depend on the industry you are auditing, like hotels don't have inventory
|| || || || || || || || || || || || ||
I. (Ch.9) Initial procedures for A/R account balance- valuation
|| || || || || || || ||
a. agree Beginning Balance of A/R to Prior Year working papers
|| || || || || || || || || ||
b. obtain A/R trial balance
|| || || ||
c. scan for unusual transactions
|| || || ||
d. agree subsidiary ledger to general ledger
|| || || || || ||
II. (Ch. 9) Substantive analytical procedures (like trend anaylysis)
|| || || || || || || ||
verify auditor's expectations of relationships such as A/R to sales and gross margins (optional to
|| || || || || || || || || || || || || || ||
use these for gathering evidence)
|| || || ||
· Not super reliable because they are client's numbers
|| || || || || || || ||
IV. Audit Data Analytics
|| || ||
technology to help in audit || || || ||
III. Tests of details of SALES transactions
|| || || || || ||
a. Vouch (going backwards) sales transactions (occurrence)
|| || || || || ||
b. Trace (going forward) sales transactions/cash receipts (completeness)
|| || || || || || ||
c. Perform cutoff tests for sales and sales returns
|| || || || || || || ||
a. Vouch (going backwards) sales transactions (occurrence)
|| || || || || ||
· Helps us gather evidence that the transactions actually occurred
|| || || || || || || || ||
· Take a sample of sales transactions from sales journal
|| || || || || || || || ||
,· Then work backwards (take recorded transaction) to sales invoice, shipping docs, sales order
|| || || || || || || || || || || || || ||
(help gather evidence for occurrence) || || || ||
b. Trace (going forward) sales transactions/cash receipts (completeness)
|| || || || || || ||
· Start with a sample of sales orders
|| || || || || || ||
· Go forward to shipping document, sales invoice, JE, cash reciept (has the customer paid)
|| || || || || || || || || || || || || ||
· Gathers evidence for completeness
|| || || ||
c. Perform cutoff tests for sales and sales returns
|| || || || || || || ||
verifying that sales are recorded in the proper time period (Illustration 11.14) || || || || || || || || || || ||
· Looking at samples a few days before and a few days after year end
|| || || || || || || || || || || || || ||
· Beware of 2024 transactions sales being recorded in 2023
|| || || || || || || || ||
Cutoff tests if client is SELLER: || || || || ||
o Pull documentation like 5 days before and after. Focus on shipping documents probably,
|| || || || || || || || || || || || || ||
because of performance obligation reasons. Record reveune at the transfer of goods BUT
|| || || || || || || || || || || ||
§ FOB shipping point
|| || ||
· Buyer owns the goods when theyre on the truck (buyer PAYS shipping), buyer considered owner
|| || || || || || || || || || || || || || ||
when goods loaded on the truck, client can record revenue when it is loaded on the truck
|| || || || || || || || || || || || || || || || ||
· If goods are shipped (loaded on truck) on or before 12/31/23, then our client (seller) records
|| || || || || || || || || || || || || || || || ||
revenue IN 2023 || ||
§ FOB destination
|| ||
· Seller pays shipping, client IS delivery company maybe
|| || || || || || || ||
· Client records revenue when goods reach destinaiton AND unloaded off the truck by the
|| || || || || || || || || || || || || || ||
customer ON or before 12/31/2023, out client records revenue IN 2023 || || || || || || || || || ||
The vouching and tracing are apart of what kind of test?
|| || || || || || || || || ||
Dual purpose test || ||
Dual purpose test? || ||
Sales testing IN CONJUNCTION with tests of IC at interim
|| || || || || || || || ||
· Pull sales orders->test the IC (is there a credit check?) and go forward and trace. Doing multiple
|| || || || || || || || || || || || || || || || || ||
audit procedures on one sample. || || || ||
· Happening at interim, not really at year end (unless retesting control, but that is uncommon)
|| || || || || || || || || || || || || || ||
IV. Confirming A/R Balances
|| || ||
Ø Powerful procedure because it tests more than one assertion
|| || || || || || || || ||
o CONFIRMATION is most powerful
|| || || ||
o Gathers evidence on more than one assertion (strong evidence)
|| || || || || || || || ||
§ Existence
||
, § Rights
||
· Weaker evidence
|| ||
o Valuation/accuracy (is customer going to pay what they owe?, they can reply and say YES to
|| || || || || || || || || || || || || || || || ||
what they owe, but that doesn't mean they will pay it)
|| || || || || || || || || ||
o Completeness (error in the client's favor, could lie)
|| || || || || || || ||
o Auditor controls the whole process
|| || || || ||
Are there times an auditor is not required to confirm A/R?
|| || || || || || || || || ||
o Yes, but it is rare
|| || || || ||
§ If AR is immaterial to the FS
|| || || || || || ||
§ If control risk is acceptibly low, meaning clients IC have been thoroughly tests
|| || || || || || || || || || || || ||
· Maybe combined these would be ok, but still confirm
|| || || || || || || || ||
§ Would be ineffective
|| || ||
· Customer is unlikely to respond (not going to send out confirmations to every Mastercard
|| || || || || || || || || || || || || || ||
customer, and everyone does not have huge AR balances on credit card || || || || || || || || || || ||
positive confirmation ||
a letter sent to a customer by auditors requesting that the customer respond whether the balance
|| || || || || || || || || || || || || || || ||
shown on it is correct or not || || || || || ||
-NEED TO REQUEST A RESPONSE IN ALL CASES || || || || || || ||
negative confirmation ||
a form sent to a customer by auditors requesting that the customer respond only if the balance
|| || || || || || || || || || || || || || || || ||
shown on it is incorrect || || || ||
-Only respond if disagree || || ||
Ø Employee might get letter from auditor that says "confirm your 401K balance, if it is wrong,
|| || || || || || || || || || || || || || || || ||
then let us know, response not necessary"
|| || || || || ||
What happens if positive confirmation not responded to?
|| || || || || || ||
Send multiple ||
-First one sent 12/31/23, 2nd and 3rd requests sent 1/15/24, subsequent cash collections 2/5/24
|| || || || || || || || || || || || ||
Ø Subsuquent cash collections
|| || ||
Customer has most likely paid at this point and you can look to see if there was a payment if you
|| || || || || || || || || || || || || || || || || || || || ||
CANT get that confirmation || || ||
Ø Inspect support Docs as well
|| || || || ||
Look as sales order, shipping docs (did client ship goods to the customer?), sales invoice
|| || || || || || || || || || || || || ||
Ø Allowance for Doubtful Accounts Procedures
|| || || || ||
What assertion is of most concern when auditing sales/accounts receivable?
|| || || || || || || || ||
· Sales:
||
o occurrence (income statement assertions)
|| || || ||
§ Facing fictitious sales
|| || ||
o Next most important: cutoff
|| || || ||
§ Recording revenue in wrong period
|| || || || ||
· Accounts Recievable (goes on balance sheet)
|| || || || || ||
o Existence
||
§ Fictitous AR (connected to if sales was fictitious)
|| || || || || || || ||
Auditing the revenue process will look different audit to audit bc.... || || || || || || || || || ||
· Will depend on the industry you are auditing, like hotels don't have inventory
|| || || || || || || || || || || || ||
I. (Ch.9) Initial procedures for A/R account balance- valuation
|| || || || || || || ||
a. agree Beginning Balance of A/R to Prior Year working papers
|| || || || || || || || || ||
b. obtain A/R trial balance
|| || || ||
c. scan for unusual transactions
|| || || ||
d. agree subsidiary ledger to general ledger
|| || || || || ||
II. (Ch. 9) Substantive analytical procedures (like trend anaylysis)
|| || || || || || || ||
verify auditor's expectations of relationships such as A/R to sales and gross margins (optional to
|| || || || || || || || || || || || || || ||
use these for gathering evidence)
|| || || ||
· Not super reliable because they are client's numbers
|| || || || || || || ||
IV. Audit Data Analytics
|| || ||
technology to help in audit || || || ||
III. Tests of details of SALES transactions
|| || || || || ||
a. Vouch (going backwards) sales transactions (occurrence)
|| || || || || ||
b. Trace (going forward) sales transactions/cash receipts (completeness)
|| || || || || || ||
c. Perform cutoff tests for sales and sales returns
|| || || || || || || ||
a. Vouch (going backwards) sales transactions (occurrence)
|| || || || || ||
· Helps us gather evidence that the transactions actually occurred
|| || || || || || || || ||
· Take a sample of sales transactions from sales journal
|| || || || || || || || ||
,· Then work backwards (take recorded transaction) to sales invoice, shipping docs, sales order
|| || || || || || || || || || || || || ||
(help gather evidence for occurrence) || || || ||
b. Trace (going forward) sales transactions/cash receipts (completeness)
|| || || || || || ||
· Start with a sample of sales orders
|| || || || || || ||
· Go forward to shipping document, sales invoice, JE, cash reciept (has the customer paid)
|| || || || || || || || || || || || || ||
· Gathers evidence for completeness
|| || || ||
c. Perform cutoff tests for sales and sales returns
|| || || || || || || ||
verifying that sales are recorded in the proper time period (Illustration 11.14) || || || || || || || || || || ||
· Looking at samples a few days before and a few days after year end
|| || || || || || || || || || || || || ||
· Beware of 2024 transactions sales being recorded in 2023
|| || || || || || || || ||
Cutoff tests if client is SELLER: || || || || ||
o Pull documentation like 5 days before and after. Focus on shipping documents probably,
|| || || || || || || || || || || || || ||
because of performance obligation reasons. Record reveune at the transfer of goods BUT
|| || || || || || || || || || || ||
§ FOB shipping point
|| || ||
· Buyer owns the goods when theyre on the truck (buyer PAYS shipping), buyer considered owner
|| || || || || || || || || || || || || || ||
when goods loaded on the truck, client can record revenue when it is loaded on the truck
|| || || || || || || || || || || || || || || || ||
· If goods are shipped (loaded on truck) on or before 12/31/23, then our client (seller) records
|| || || || || || || || || || || || || || || || ||
revenue IN 2023 || ||
§ FOB destination
|| ||
· Seller pays shipping, client IS delivery company maybe
|| || || || || || || ||
· Client records revenue when goods reach destinaiton AND unloaded off the truck by the
|| || || || || || || || || || || || || || ||
customer ON or before 12/31/2023, out client records revenue IN 2023 || || || || || || || || || ||
The vouching and tracing are apart of what kind of test?
|| || || || || || || || || ||
Dual purpose test || ||
Dual purpose test? || ||
Sales testing IN CONJUNCTION with tests of IC at interim
|| || || || || || || || ||
· Pull sales orders->test the IC (is there a credit check?) and go forward and trace. Doing multiple
|| || || || || || || || || || || || || || || || || ||
audit procedures on one sample. || || || ||
· Happening at interim, not really at year end (unless retesting control, but that is uncommon)
|| || || || || || || || || || || || || || ||
IV. Confirming A/R Balances
|| || ||
Ø Powerful procedure because it tests more than one assertion
|| || || || || || || || ||
o CONFIRMATION is most powerful
|| || || ||
o Gathers evidence on more than one assertion (strong evidence)
|| || || || || || || || ||
§ Existence
||
, § Rights
||
· Weaker evidence
|| ||
o Valuation/accuracy (is customer going to pay what they owe?, they can reply and say YES to
|| || || || || || || || || || || || || || || || ||
what they owe, but that doesn't mean they will pay it)
|| || || || || || || || || ||
o Completeness (error in the client's favor, could lie)
|| || || || || || || ||
o Auditor controls the whole process
|| || || || ||
Are there times an auditor is not required to confirm A/R?
|| || || || || || || || || ||
o Yes, but it is rare
|| || || || ||
§ If AR is immaterial to the FS
|| || || || || || ||
§ If control risk is acceptibly low, meaning clients IC have been thoroughly tests
|| || || || || || || || || || || || ||
· Maybe combined these would be ok, but still confirm
|| || || || || || || || ||
§ Would be ineffective
|| || ||
· Customer is unlikely to respond (not going to send out confirmations to every Mastercard
|| || || || || || || || || || || || || || ||
customer, and everyone does not have huge AR balances on credit card || || || || || || || || || || ||
positive confirmation ||
a letter sent to a customer by auditors requesting that the customer respond whether the balance
|| || || || || || || || || || || || || || || ||
shown on it is correct or not || || || || || ||
-NEED TO REQUEST A RESPONSE IN ALL CASES || || || || || || ||
negative confirmation ||
a form sent to a customer by auditors requesting that the customer respond only if the balance
|| || || || || || || || || || || || || || || || ||
shown on it is incorrect || || || ||
-Only respond if disagree || || ||
Ø Employee might get letter from auditor that says "confirm your 401K balance, if it is wrong,
|| || || || || || || || || || || || || || || || ||
then let us know, response not necessary"
|| || || || || ||
What happens if positive confirmation not responded to?
|| || || || || || ||
Send multiple ||
-First one sent 12/31/23, 2nd and 3rd requests sent 1/15/24, subsequent cash collections 2/5/24
|| || || || || || || || || || || || ||
Ø Subsuquent cash collections
|| || ||
Customer has most likely paid at this point and you can look to see if there was a payment if you
|| || || || || || || || || || || || || || || || || || || || ||
CANT get that confirmation || || ||
Ø Inspect support Docs as well
|| || || || ||
Look as sales order, shipping docs (did client ship goods to the customer?), sales invoice
|| || || || || || || || || || || || || ||
Ø Allowance for Doubtful Accounts Procedures
|| || || || ||
