ACCT 373 Lecture Notes - Lecture 14: Risk Management, Risk Assessment, Audit Risk

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scarletdeer311

19 Oct 2017

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Inspection of documents (existence/occurrence, valuation, rights & obligations, Inspection of physical assets (existence/occurrence, completeness, valuation) Testing completeness, tracing: origins (invoice, purchase order, shipping order) sales. Testing existence, vouching: starting with account balance original documents account. Audit program: how to execute the plan. For public companies: requires additional testing, attestation report on the substantive tests effectiveness of internal controls over financial reporting. Responsible for internal control effectiveness, provide evidence and written statement. To outsiders if legally required, to successor auditor, responding to subpoena, to funding agency. Internal control is a process, effected by board of directors, management, personnel. Can provide reasonable assurance to the achievement of objectives. Control environment: sets the tone of an organization, whether controls are important or. Evaluate integrity, values, competence, management"s philosophy and operation not style, how management assigns authority and responsibility, organizes and develops people, attention and direction provided by board of directors. How to initiate, authorize, record, process, and report significant transactions.

Related Questions

Management assertions for the financial statements referenced inPCAOB Auditing Standards are:

Existence, occurrence

Completeness

Rights, obligations

Valuation, allocation

Presentation and disclosure

The purpose of tests of controls is to permit the auditor toassess whether properly designed controls operate effectivelyenough to prevent or detect material misstatements that would makethese managements assertions wrong.

Required:

For each of the following audit procedures identify whether theprocedure is:

(a) directed at a control or at an amount ordisclosure, or both, and

(b) what assertion (or assertions) is (are)targeted.

Accounts, Classes of Transactions	Audit Procedure	Directed at:	Assertion:
All	Inquire who controls passwords for IT access.
Sales, Receivables, Inventory	Examine document packages for items that have been shipped forinclusion of a customer order, credit approval, and shippingdocument. Make sure the documents are properly matched andcomplete, with all required signatures and trace amounts to thesales journal, accounts receivable subsidiary ledger, and inventoryfiles.
Payroll	For the Hourly Payroll Expense account, multiply the averagenumber of workers times the average number of hours worked per yeartimes the average hourly rate. Compare to the total posted annualamount.
Cash	Inspect the client-prepared bank reconciliation for each monthof the year, recalculate the amounts, examine the supporting bankstatements, and trace the cash amount to the general ledger.
Fixed assets	Obtain a list of fixed assets and physically look at theassets.
Long-term debt	Read the contract related to each of the companyâs long-termborrowings and agree the terms of the contracts to the financialstatements notes.
Cash, Long-term debt	For each item of long-term debt that existed both at thebeginning and end of the year, inspect the debt contracts and thecompanyâs analysis of the discounted debt amount and its analysisof violation of debt covenants and look for whether the detailsagree. Recalculate the amounts, and examine recorded entries andbank statements for cash disbursements for debt repayments. Usingthat information, determine whether the company has been inviolation of any debt covenants during the year.
Prepaid rent	Using the beginning financial statement amount, cash receiptsand cash disbursements evidence, and the lease agreement, calculateyear-end prepaid rent and agree that amount to what is shown in thegeneral ledger.
Inventory	At the end of the last day in the fiscal year, go to theclientâs shipping area and record the last shipment; trace theshipment into the clientâs

ochrellama864

Management assertions for the financial statements referenced inPCAOB Auditing Standards are:

Existence, occurrence

Completeness

Rights, obligations

Valuation, allocation

Presentation and disclosure

Required:

For each of the following audit procedures identify whether theprocedure is:

(a) directed at a control or at an amount ordisclosure, or both, and

(b) what assertion (or assertions) is (are)targeted.

Accounts, Classes of Transactions	Audit Procedure	Directed at:	Assertion:
All	Inquire who controls passwords for IT access.
Sales, Receivables, Inventory	Examine document packages for items that have been shipped forinclusion of a customer order, credit approval, and shippingdocument. Make sure the documents are properly matched andcomplete, with all required signatures and trace amounts to thesales journal, accounts receivable subsidiary ledger, and inventoryfiles.
Payroll	For the Hourly Payroll Expense account, multiply the averagenumber of workers times the average number of hours worked per yeartimes the average hourly rate. Compare to the total posted annualamount.
Cash	Inspect the client-prepared bank reconciliation for each monthof the year, recalculate the amounts, examine the supporting bankstatements, and trace the cash amount to the general ledger.
Fixed assets	Obtain a list of fixed assets and physically look at theassets.
Long-term debt	Read the contract related to each of the companyâs long-termborrowings and agree the terms of the contracts to the financialstatements notes.
Cash, Long-term debt	For each item of long-term debt that existed both at thebeginning and end of the year, inspect the debt contracts and thecompanyâs analysis of the discounted debt amount and its analysisof violation of debt covenants and look for whether the detailsagree. Recalculate the amounts, and examine recorded entries andbank statements for cash disbursements for debt repayments. Usingthat information, determine whether the company has been inviolation of any debt covenants during the year.
Prepaid rent	Using the beginning financial statement amount, cash receiptsand cash disbursements evidence, and the lease agreement, calculateyear-end prepaid rent and agree that amount to what is shown in thegeneral ledger.
Inventory	At the end of the last day in the fiscal year, go to theclientâs shipping area and record the last shipment; trace theshipment into the clientâs records.

amaranthshark295

Management assertions for the financial statements referenced inPCAOB Auditing Standards are:

Existence, occurrence

Completeness

Rights, obligations

Valuation, allocation

Presentation and disclosure

Required:

For each of the following audit procedures identify whether theprocedure is:

(a) directed at a control or at an amount ordisclosure, or both, and

(b) what assertion (or assertions) is (are)targeted.

Accounts, Classes of Transactions	Audit Procedure	Directed at:	Assertion:
All	Inquire who controls passwords for IT access.
Sales, Receivables, Inventory	Examine document packages for items that have been shipped forinclusion of a customer order, credit approval, and shippingdocument. Make sure the documents are properly matched andcomplete, with all required signatures and trace amounts to thesales journal, accounts receivable subsidiary ledger, and inventoryfiles.
Payroll	For the Hourly Payroll Expense account, multiply the averagenumber of workers times the average number of hours worked per yeartimes the average hourly rate. Compare to the total posted annualamount.
Cash	Inspect the client-prepared bank reconciliation for each monthof the year, recalculate the amounts, examine the supporting bankstatements, and trace the cash amount to the general ledger.
Fixed assets	Obtain a list of fixed assets and physically look at theassets.
Long-term debt	Read the contract related to each of the companyâs long-termborrowings and agree the terms of the contracts to the financialstatements notes.
Cash, Long-term debt	For each item of long-term debt that existed both at thebeginning and end of the year, inspect the debt contracts and thecompanyâs analysis of the discounted debt amount and its analysisof violation of debt covenants and look for whether the detailsagree. Recalculate the amounts, and examine recorded entries andbank statements for cash disbursements for debt repayments. Usingthat information, determine whether the company has been inviolation of any debt covenants during the year.
Prepaid rent	Using the beginning financial statement amount, cash receiptsand cash disbursements evidence, and the lease agreement, calculateyear-end prepaid rent and agree that amount to what is shown in thegeneral ledger.
Inventory	At the end of the last day in the fiscal year, go to theclientâs shipping area and record the last shipment; trace theshipment into the clientâs records.

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ACCT 373 Lecture Notes - Lecture 14: Risk Management, Risk Assessment, Audit Risk

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