focusNode
Didn't know it?
click below
Knew it?
click below
Embed Code - If you would like this activity on your web page, copy the script below and paste it into
your web page.
Normal Size Small Size show me how
Yeah
| What are the short-term effect and the long-term effect on the financial statements for improperly capitalizing expenditures? | Capitalizing expenses increases net income in the year when they should have been completely expensed. |
| What is a voucher? | A document that shows the accounts that are debited and indicates who checked the invoice for proper date, price, math, and reconciled voucher package. |
| How can purchashing managers use their position to defraud the company? | Because they can give business to vendors who do not give the best quality or price to the company. |
| What can be done to prevent it? | If the purchase or series of purchases exceed a certain dollar amount, require that they receive bids from several vendors and have bids get collected by someone else |
| Why is a "blind" purchase order used as a receiving report document? | A purchase order with all purchase information except the quantity, which is left blank for the receiving dpartment to fill in after inspection/count. |
| Where could an auditor look to find evidence of losses on purchase commitments? | Auditors can find evidence in the open purchase order file if market prices have fallen below the purchase price shown in purchase orders. |
| Where could an auditor look to find evidence of losses on unrecorded liabilities to vendors? | They can inspect the unmatched receiving report and the unmatched invoice file. |
| What primary functions should be separated in the acquisition and expenditure cycle? | Seperation of duties should include purchasing, reciving, and cash disbursement; more on pg 325 |
| What feature of the acquisition and expenditure control would be expected to prevent an employee's embezzling cash through creation of fictitious vouchers? | Use custody to prevent access to blank documents such as purchase orders, receiving reports, and checks. |
| How would substantive procedures for accounts payable be affected by a low risk of material misstatement? | CR down, DR up, SP down |
| How would substantive procedures for accounts payable be affected by a high risk of material misstatement? | CR up, DR down, SP up |
| Describe the purpose and give examples of audit procedures in the search for unrecorded liabilities. | The objective of the search is to search anywhere where evidence of liabilities could exist |
| In substantive procedures, why is the emphasis on the completeness assertion for liabilities instead of on the existence assertion as in the audit of audits? | The emphasis is on completeness because financial statement users are more concerned if a company understates expenses and liabilities than if management overstates those accounts. |
| How do audit procedures for prepaid expenses and accrued liabilities also provide audit evidence about related expense accounts? | Because they are cross-referenced and used with analytical procedures for horizontal/vertical analysis. |
| What assertions found in PP&E, investments, and intangibles accounts are of interest to an auditor during the exam of the expenditure and acquisition cycle? | Rights, completeness, valuation, existence, presentation and disclosure [pg 332] |
| What items in a client's PP&E and depreciation schedule give auditors points of departure [assertions] for audit procedures? | Physical inspection and vouching --and inspecting documents [existence, valuation, rights, and obligations] |
| What four methods are used to audit other expense accounts? | Substantive tests of transactions [a sample], analytical procedures, examine them separately, or in conjunction with related assets and liabilities. |
| What do we mean by revenue recognition? | The recording of revenues in the entity's books |
| What does GAAP say about proper revenue recognition? | Revenue is recognized when it is realized [or realizable] and earned. |
| Why do you think companies use revenue recognition as a primary means for inflating profits? | To meet sales forecasts [resulting in higher EPS and better bonuses] |
| Why is revenue recognition riskier for a new company? | Because financial analysts often value them at a multiple of total revenues. |
| What is the basic sequence of activities and accounting in a revenue and collection cycle? | The basic activities: 1] receiving + processing customer orders [including credit approval], 2] delivering goods + services to customers, 3] billing customers and accounting for accounts receivable, and 4] collecting + depositing cash received from cust |
| What purpose is served by prenumbering sales orders, shipping documents, and sales invoices? | So the system can check the sequence and determine whether any transactions have not been recorded [completeness] or have been duplicated [occurrence]. |
| What controls should be implemented to safeguard accounts receivable files? | Limited access, frequent backup, disaster recovery plans, and high security |
| What computer-based files might auditors examine to find evidence of unrecorded sales? | The Pending Order Master File which tests completeness. |
| What computer-based files might auditors examine to find evidence of inadequate credit checks? | The credit check files |
| What computer-based files might auditors examine to find evidence of incorrect product unit prices? | The Price List Master File |
| What account balances are included in a revenue and collection cycle? | Cash, A/R, Allowance for Bad Debts, Bad Debts Expense, Sales Revenue, Sales Returns & Allowances |
| What specific control procedures [in addition to separation of duties and responsibilities] should be in place and operating in internal controls governing revenue recognition and cash accounting? | List on page 280 |
| What is a walkthrough of a sales transaction? | It involves following a sale from the initial customer order through credit approval, billing, and delivery of goods to the entry in the sales journal, subsidiary A/R, and cash receipts journal. |
| How can the walkthrough work complement the use of an internal control questionnaire? | A walkthrough can be used to answer questions not on the questionnaire or to observe the accuracy of the responses. |
| What assertions are made about classes of transaction and events in the revenue and collection cycle? | Occurrence, Completeness, Accuracy, Cutoff, and Classification |
| What types of evidence-gathering procedures are typically performed in testing controls over the revenue and collection cycle? | Vouching [occurrence] and tracing [completeness] - more on pg 281 |
| What is dual-direction test of controls sampling? | It is when you select samples to obtain evidence about control over completeness is one direction and control over occurrence in the other direction. |
| Why is it important to emphasize the existence assertion when auditing accounts receivable? | Because companies and auditors have found themselves in malpractice lawsuits by issuing unqualified reports on financial statements that overstated assets and revenues. |
| Which audit procedures are usually the most useful for auditing the existence assertion? | Confirming a sample of accounts receivable and performing follow-up procedures [pg 283] |
| What analytical procedures might be informative regarding the existence assertion? | Comparisons of assets and revenue balances with recent history and comparison of account interrelationships. |
| Distinguish between positive and negative confirmations. Under what conditions would you expect each type of confirmation to be appropriate? | Positive; asks the client to respond if the info is accurate/inaccurate Negative; Asks the client to not respond if the amount is right |
| What are some justifications for not using confirmations of accounts receivable on a particular audit? | 1] Receivables are not material, 2] confirmations would be ineffective based on experience or knowledge, and 3] analytical procedures or other SP provide sufficient, competent evidence |
| What special care should be taken with regard to examining the sources of accounts receivable confirmation responses? | Auditors should follow up on electronic/phone responses and not accept confirmations that are not returned to the auditors directly |
| What alternative procedures should be applied to accounts that do not return confirmations? | Examine 1] subsequent cash receipts [most effective], 2] sales orders, invoices, and shipping documents, and 3] correspondence files for past due accounts |
| What procedures should be performed to determine the adequacy of the allowance for doubtful accounts? [in support of the valuation assertion] | Review subsequent cash receipts from customer, discuss unpaid accounts with the credit manager, and examine the credit files. |
| What are the goals of dual-direction testing regarding an audit of the accounts receivable and cash collection system? | To obtain evidence of the existence and gross amount [valuation] of customers' balances directly from the customer. |
Why is revenue recognition important?
The revenue recognition principle, a key feature of accrual-basis accounting, dictates that companies recognize revenue as it is earned, not when they receive payment. Accurate revenue recognition is essential because it directly affects the integrity and consistency of a company's financial reporting.
What is your understanding about the revenue recognition concept explain in brief?
Revenue recognition is a generally accepted accounting principle [GAAP] that identifies the specific conditions in which revenue is recognized and determines how to account for it. Typically, revenue is recognized when a critical event has occurred, and the dollar amount is easily measurable to the company.
What are the primary control procedures to ensure completeness of recorded revenues?
what are primary control procedures to ensure completeness of recorded revenues? To ensure completeness of recorded revenue, all invoices, shipping documents, and sales orders should be prenumbered, and the numerical sequence should be checked on a timely basis.
What is revenue recognition with example?
What is the Revenue Recognition Principle? The revenue recognition principle states that you should only record revenue when it has been earned, not when the related cash is collected. For example, a snow plowing service completes the plowing of a company's parking lot for its standard fee of $100.