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ACCT 3280 Chapter Notes - Chapter 5: Audit Evidence, Balance Sheet, Income Statement

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sapphirerat470
21 Dec 2015
School
University of Guelph
Department
Accounting
Course
ACCT 3280
Professor
Sandra Scott

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Document Summary

5. 1 assertions o o o o o o o o o o. Statements made by management regarding the recognition, measurement, presentation and disclosure of items included in the f/s. Auditors use assertions for transactions, account balances, presentation and disclosures when assessing the risk of misstatement. Income statement assertions: o occurred and pertain to the entity. Occurrence: transactions and events that have been recorded have. Completeness: all transactions and events that should have been recorded have been recorded. Accuracy: amounts and other data relating to recorded transactions and events have been recorded appropriately. Cut-off: transactions and events have been recorded in the correct. Classification: transactions and events have been recorded in the accounting period proper accounts o. Rights and obligations: the entity holds or controls the rights to assets and liabilities are the obligations of the entity. Completeness: all assets, liabilities and equity interests that should have been recorded have been recorded.

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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 company’s 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 thecompany’s 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 theclient’s shipping area and record the last shipment; trace theshipment into the client’s

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 company’s 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 thecompany’s 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 theclient’s shipping area and record the last shipment; trace theshipment into the client’s records.

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 company’s 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 thecompany’s 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 theclient’s shipping area and record the last shipment; trace theshipment into the client’s records.