SELF-TEST DRILL (STD)1.Evidential matters supporting the financial statementsconsist of accounting records and other informationavailable to the auditor.Other information can befound in: Show Get answer to your question and much more Page 6 of 7AT.05052.Identify the nature of the evidential matter, (AR foraccounting records, OI for other information)Lawyer’s reply on status of legal casesMinutes of board and stockholders meetingsWorksheets in support of cost allocationsBenchmarkingInvoices, paid checks, vouchersThe following are the respective nature of evidentialmatter:a.OI, AR, OI, AR, ARb.AR, OI, AR, OI, ARc.OI, OI, AR, OI, ARd.AR, AR, OI, AR, AR3.Generally, what source of audit evidence would mostpersuasively support audit conclusions?a.Externalb.Inquiryc.Orald.Informal4.Which statement is incorrect regarding the auditevidence?a. The greater the risk, the more audit evidence islikely to be required.b. The higher the quality, the more may be requiredc. Merely obtaining more audit evidence may notcompensate for its poor quality.d. Obtaining audit evidence relating to a particularassertion is not a substitute for obtaining auditevidence regarding another assertion.
Terms in this set (58)Assertions about classes of transactions and Events during the Period Occurrence Assertions about classes of transactions and events relate to the transactions that flow through a particular business process and accumulate in one or ore financial statement accounts Occurrence (validity) Transactions and events that have been recorded have occurred and pertain to the entity. Typical Accounts: Assets, liabilities, and equity interest exist. Disclosed events and transactions have occurred and pertain to the entity. Ex: management asserts that all revenue transactions recorded during the period were valid transactions. Results in overstatement. Completeness All transactions and events that should have been recorded have been recorded. Typical accounts: All assets, liabilities, and equity interest that should have been recorded have been recorded. Ex: Client fails to record a valid revenue transaction. Failure to meet completness results in an understatement. Authorization Relates to whether or not all transactions have been properly authorized. The purchase of something should be approved. Accuracy Whether amounts and other data relating to recorded transactions and events have been recorded appropriately. For example: proper depreciation method, or capitlization of an asset. Cutoff Relates to whether transactions and events have been recorded in the correct accounting period. Must ensure that transactions occurring near year-end are recorded in the financial statements in the proper period. Classification Concerned with whether transactions and events have been recorded in the proper accounts. Ex: purchases are properly recorded as either assets or expenses. Assertions about Account Balances at the Period End Existence relate directly to the ending balances of the accounts included in the financial statements Existence the assertion about existence addresses whether ending balances of assets, liabilities, and equity interest included in the FS actually exist at the date of the financial statements. Inventory on the balance sheet exists and is available for sale. Rights and Obligations Address whether the entity holds or controls the rights to assets included on the financial statements and that liabilities are the obligations of the entity. Ex: management asserts that the entity has legal title or rights of ownership to the inventory. Valuation and Allocation Assertions about valuation or allocation address whether assets, liabilities, and equity interests included in the financial statements are at appropriate amounts and any resulting valuation or allocation adjustments are appropriately recorded. Ex: management asserts that inventory is at lower of cost or market value. PPE is properly valued after depreciation expense. Assertions about Presentation and Disclosure This category of assertions relates to presentation of information in the financial statements and disclosures in the footnotes that are directly related to a specific transaction or account balance and those that apply to the financial statements in general. Nature of Audit Evidence refers to the form or type of information, which include accounting records and other available information. Accounting Records: include the records of initial entries and supporting records. Other information - minutes of meetings; confimations from third parties; industry analysts reports, comparable data about competitors; controls manuals; inofrmation obtained b te auditor from such audit pricedures as inquiry, observation, and inspection. Sufficiency is the measure of the quantity of audit evidence Appropriateness is a measure of the quality of audit evidence Sufficiency and appropriateness of evidence are interrelated. The quantity of audit evidence needed is affected by the risk of material misstatement the greater the risk of mm the more audit evidence and vise versa. The higher the quality of evidence the less evidence that may be required to meet the audit test. the auditor relies on evidence that is persuasive rather than convincing in forming an opinion on a set of FS This occurs because an audt must be completed in a reasonable amount of time and at a reasonable cost. the auditor reaches a conclusion about the account or class based ona asubset of the available evidence. Second due to the nature of evidence, auditors must often rely on evidence that is not perfectly reliabile Evidence is considered appropriate when it provides information that is both relevant and reliable Relevance the relevance of audit evidence refers to its relationship to the assertion or to the objective of the control being tested. Relying on information that is not relevant can lead to wrong conclusions. Reliability refers to whether a particular type of evidence can be relied upon to signal the true state of an assertion. Reliable information is typically knowldegeable independent source of the evidence - independent sources outside the entity are usually viewed as more reliable. Effectiveness of internal control - when internal controls are effective evidenced generated is viewed as reliable and vise versa. Auditors direct personal knowledge - obtained directly by the auditor considered to be more reliable than evidence obtained indirectly. Ex physical inspection of inventory Documentary evidence - more reliable when it exists in documentary form (paper, electronic, etc) Original Documents - more reliable then say photo copies audit procedures are specific acts performed by the auditor to gather evidence about whether specific assertions are being met. There are three categories of audit procedures, each serving a purpose Risk Assessment procedures,tests of controls, and substantive procedures Risk Assessment Procedures Used to obtain an understanding of the entity and its environment, including its internal control, to assess the risk of mm at the fs and relevant assertion levels Tests of controls Used to test the operating effectiveness of controls in preventing or detecting and correcting, material misstatements at the relevant assertion level Substantive proedures used to detect MM at the relevant assertion level. Sunstantive procedures include tests of details and substantive analytical procedures A set of audit procedures prepared to test assertions is usually referred to as an audit program These types of evidence may be gathered during the application of risk assesssment procedures, toc, or substantive procedures. Inspection of records or documents Inspection of Records or Documents Consists of examining internal or external records or documents that are in paper form, electronic form, or other media. Makes up the bulk of the evidence gathered by the auditor. Two issues are important in discussing inspection of records and documents reliability and its relationship to specific assertions. Reliability of Records or Documents Evidence obtained from a knowledgeable source outside the entity is generally considered more reliable than evidence obtained solely from within the entity. Internal document are generated and maintained within the entity (have not been seen by any party outside the organization). Ex: dupllicate sales invoices and shipping documents External documents documents originating within the entity but circulated to independent sources outside the entity and documents originating outside the entity but included in the clients accounting records EX: of first remittance advices returned with cash receipts from customers and payroll checks ex: second - bank statements and vendor invoices. Reliability of external documents depends on a number of factors reliability of controls over preparation and storage of internal documents Documentary evidence related to assertions relates directly to the occurrence and completeness assertions and to the direction of testing taken when documentary evidence is examined. Direction of testing between the accounting records and source documents is important when testing the occurrence and completeness assertions. Vouching refers to selecting an item for testing from the accounting journals or ledgers and then examining the underlying source document. the direction of testing is from te journals or ledgers back to the source documents. This provides evidence that items included in the accounting records have occurred. (not fictcious). Tracing refers to first selecting a source document and then following it into the journal or ledger. The direction of testing in this case is from the source documents to the journals or ledger. Testing in this direction ensures that transactions that occurred are recorded (completeness) in the accounting records. Ex: tracing shipping documents to the related sales invoices and then to the sales journal. Inspection of tangible Assets Consists of physical examination of the assets. (considered reliable) Involves the auditor inspecting or counting a tangible asset. Provides assurance the asset exists. may provide evidence on valuation by identifying obsolete or slow moving inventory. No rights or obligations assertion. Observation Consist of looking at a process or procedure being performed by others. (these actions dont typically leave an audit trail that can be tested (no documents)) Ex: the counting of inventory Considered not very reliable and must be collaborated. Observation in the auditing sense consists of looking at a process or procedure being performed by others. Inquiry Consists of seeking information of knowledgeable persons within the entity or outside the entity. Inquiries may range from formal written inquiries to informal oral inquiries. May provide new or corroborative evidence. the reliability of audit evidence obtained from inquiries is affected by the training, knowlede, and experince of the auditor performing the inquiry. Must have corroborative evidence. External Confirmation Represents audit evidence obtained by the auditor as a direct written response to the auditor from a third party. in papaer form or by electronic or other medium. Inquiry refer to unwritten questions asked of the client or of a third party confirmation refer to written requests for a wirtten reposne from a third party. The reliability of evidence obtained through external confirmations may be affeccted by factors such as the form of the confirmation, generally provide reliable evidence for the existence assertion and in testing certain financial statement components. Recalculation/Reperformance Consists of checking the mathematical accuracy of documents or records. involves the independent execution by the auditor of procedures or controls that were originally performed by company personnel. Analytical Procedure consists of evaluations of financial information through analysis of plausible relationships among both financial and nonfinancial data. Ex: comparing accounts receivable balances from prior years. the auditor makes such comparisons either ot identify accounts that may contain mm and require more investigation. Analytical procedures can be used by an auditor to accomplish three purposes Risk Assessment procedures - to assist the auditor to better understand the business and to plan the nature, timing, and extent of audit procedures Substantive analytical procedures - are used as a substatntive procedure to obtain evidential matter about particular assertions related to account balances or classes of transactions Final analytical procedures - are used as an overall review of the financial information int he final review stage of the audit. The reliability of analytical procedures is a function of the availability and reliability of the data used in the calculations the plausibility and predictability of the relationship being tested the precision of the expectation and the rigor of the investigation. Scanning is the review of accounting data to identify significant or unusual items. this includes searching for large and unusual items in the accounting records, as well as reviewing transaction data for indications of errors that have occurred. High reliability inspection of tangible assets, reperformance, and recalculation medium reliability inspection of records and documents, confirmation, analytical prcedures, and scanning observation and inquiry low reliability Auditing standards require that auditors perform substantive procedures for significant account balances and classes of transactions regardless of the assessed risk of mm. Substantive procedures include substantive analytical procedures and tests of details For high-risk areas or highly material accounts, the auditors will almost always perform some tests of details in addition to test of controls and substantive analytical procedures. Students also viewedChapter 6 Audit15 terms jess_schmitt CHAPTER 7 AUDIT89 terms student71010 Chapter 7 Overview of the Financial Audit Process156 terms DRikuCPA Ch 7 Audit92 terms samantha_trask Other sets by this creatorCPA AUDIT 442 terms ndhp1234 Tax Practice and Penalties9 terms ndhp1234 Interpretations of SSTS5 terms ndhp1234 Statements on Standards for Tax Services21 terms ndhp1234 Verified questions
finance Answer these questions about receivables and uncollectibles. For the true-false questions, explain any answers that turn out to be false. True or false? Credit sales increase receivables. Collections and write-offs decrease receivables. True or false? A proper way to express credit terms is “FOB shipping point.” Which receivables figure—the total amount that customers owe the company, or the net amount the company expects to collect—is more interesting to investors as they consider buying the company’s stock? Give your reason. Show how to determine net sales revenue. Show how to determine net accounts receivable. True or false? The direct write-off method of accounting for uncollectibles understates assets. Carolina Bank lent $150,000 to Sumter Company on a six-month, 6% note. Which party has interest receivable? Which party has interest payable? Interest expense? Interest revenue? How much interest will these organizations record one month after Sumter Company signs the note? When Carolina Bank accrues interest on the SumterCompany note, show the directional effects on the bank’s assets, liabilities, and equity (increase, decrease, or no effect). True or False? Credit card sales increase accounts receivable. True or False? Companies with strong liquidity usually factor receivables. Verified answer
finance Sung Company is able to produce two products, R and T, with the same machine in its factory. The following information is available. $$ \begin{matrix} & \text{Product R} & \text{Product T}\\ \text{Selling price per unit}\ldots\ldots\ldots & \text{\$60} & \text{\$80}\\ \text{Variable costs per unit} \ldots\ldots\ldots & \text{20} & \text{45}\\ \text{Contribution margin per unit} \ldots\ldots\ldots & \text{\$40} & \text{\$35}\\ \text{Machine hours to produce 1 unit}\ldots\ldots\ldots & \text{0.4 hours} & \text{1.0 hours}\\ \text{Maximum unit sales per month}\ldots\ldots\ldots & \text{550 units} & \text{175 units}\\ \end{matrix} $$ The company presently operates the machine for a single eight-hour shift for 22 working days each month. Management is thinking about operating the machine for two shifts, which will increase its productivity by another eight hours per day for 22 days per month. This change would require $3,250 additional fixed costs per month. 1. Determine the contribution margin per machine hour that each product generates. 2. How many units of Product R and Product T should the company produce if it continues to operate with only one shift? How much total contribution margin does this mix produce each month? 3. If the company adds another shift, how many units of Product R and Product T should it produce? How much total contribution margin would this mix produce each month? Should the company add the new shift? Explain. 4. Suppose that the company determines that it can increase Product R’s maximum sales to 675 units per month by spending$4,500 per month in marketing efforts. Should the company pursue this strategy and the double shift? Explain. Verified answer
finance For each transaction, indicate whether each account would be classified in the balance sheet as (a) an asset, (b) a liability, or (c) stockholders' equity; in the income statement as (d) a revenue or (e) an expense; or in the statement of stockholders' equity as (f) a dividend. $$ \begin{array}{lll} \text{Account Classifications} & \text{Accounts} & \text{Related Transactions}\\ \hline \text{1. \_\_\_\_\_} & \text{Utilities payable} & \text{Amounts owed for utilities.}\\ \text{2. \_\_\_\_\_} & \text{Cash} & \text{Cash available for use.}\\ \text{3. \_\_\_\_\_ } & \text{Salaries expense} & \text{Cost of salaries.}\\ \text{4. \_\_\_\_\_} & \text{Common stock} & \text{Shares of ownership sold to investors.}\\ \text{5. \_\_\_\_\_} & \text{Service revenue} & \text{Sale of services to customers.}\\ \end{array} $$ Verified answer
finance A large auto manufacturer sells large fleets of vehicles to auto rental companies, such as Budget and Hertz. Suppose Budget is negotiating with the auto manufacturer to purchase 827 vehicles. Write a short paragraph to explain to the auto manufacturer when the company should, and should not, record this sales revenue and the related expense for cost of goods sold. Mention the accounting principles that provide the basis for your explanation. Verified answer Recommended textbook solutions
 Century 21 Accounting: General Journal11th EditionClaudia Bienias Gilbertson, Debra Gentene, Mark W Lehman 1,012 solutions
Accounting: What the Numbers Mean9th EditionDaniel F Viele, David H Marshall, Wayne W McManus 345 solutions Intermediate Accounting14th EditionDonald E. Kieso, Jerry J. Weygandt, Terry D. Warfield 1,471 solutions
Fundamentals of Financial Management14th EditionEugene F. Brigham, Joel F Houston 845 solutions Other Quizlet setsAnatomy Ch 1369 terms kszakacs CET Law and Insurance Exam 258 terms Garrett_Peck77 Words from the Arlena's book15 terms Dominikb98 What is inspection in audit procedure?Inspection is an audit procedure based on the examination of records or documents, whether internal or external, that could be held in various forms, ie paper, electronic or similar, or on the physical assessment of an asset.
What is inspection or observation process?Observation and inspection are two procedures used when performing tests of control. Observation means being physically present when the client performs the internal control procedure, while inspection involves examining documents for proof that the internal control procedure was performed.
What are the 4 types of audit evidence?Audit evidence is collected through audit procedures.. Physical examination. ... . Confirmations. ... . Documentary evidence. ... . Analytical procedures. ... . Oral evidence. ... . Accounting system. ... . Re-performance.. What are the audit procedures?Audit procedures are the techniques, processes, and methods that auditors use to obtain reliable audit evidence, which enables them to gain a sound judgment about an organization's financial status. Audit procedures are conducted to help determine whether or not a company's financial statement is credible and factual.
|
