ACG 5637 Chapter Notes - Chapter 10: Audit Risk, Internal Control

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chocolateleopard236

9 Nov 2020

School

University of Florida

Department

Accounting

Course

ACG 5637

Professor

Blake Bowler

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Document Summary

Control tests provide evidence that internal control processes are working as designed but control tests only support the auditor"s assessed level of control risk. Control tests reduce the risk of a material misstatement but do not provide evidence that the reported results are in accordance with gaap. The more significant and risky an assertion, the more important it is that the auditor obtain high quality evidence. Management assertions: transactions, occurrence, completeness, accuracy, cut-off, and classification, accounts, existence, rights and obligations, completeness, and valuation and allocation, presentation and disclosure, occurrence and rights and obligations, completeness, classification and understandability, and accuracy and valuation. Analyzing residual risks identified from strategic and process analysis. Residual risk analysis can affect an audit in any, or all, of these 4 ways : condition expectations, raise concerns about viability, increase control risk, increase risk of material misstatement.

Related Questions

Assertions in Auditing:

1) Confirmation from debtors may provide audit evidence for existence and rights and obligations, but not for valuation, why not?

2) How do auditors apply assertions in the planning and testing stage of the audit?

3) Give an example for each of the following assertions: Occurrence, Completeness, Classification, Accuracy.

4) Describe how management assertions relates to the study of accounting information systems.

5) What are the auditing assertions about account balances at the year-end that cannot be usually address by the audit procedures? Why not?

orchidbadger534

Understanding the management assertions related to a specificcontrol is an important factor in preparing the tests of controls.Using the assertions provided below, select the managementassertion(s) that relates to the purpose of the controls in thetable. (A management assertion may be selected once, more thanonce, or not at all.)

Management Assertions

(a) Existence or occurrence

(b) Completeness

(c) Rights and obligations

(d) Valuation or allocation

(e) Presentation and disclosure

(f) Authorization

(g) Cutoff

Purpose of Control	Management Assertion
To ensure that credit is approved before a sale is executed andservice is provided or goods are shipped
To ensure that transactions shown as sales are properlyclassified
To ensure that when cash receipts are recorded they show cashthat was actually received by the company and deposited
To ensure that cash receipts transactions are properly posted tothe accounts receivable subsidiary ledger and general ledger
To ensure that all cash received by the company is deposited andrecorded in the cash receipts journal and that amounts and details,including the date, are shown correctly
To ensure that sales transactions are recorded based on thecorrect dates

lavenderpug75

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

ACG 5637 Chapter Notes - Chapter 10: Audit Risk, Internal Control

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