The document discusses auditing procedures for accounts receivable and cash balances. It outlines management assertions that auditors need to test, including existence, completeness, valuation, rights and obligations, and presentation and disclosure. The document then describes objectives and procedures for testing each assertion, such as confirmation, cutoff testing, and analytical procedures. It also discusses risks like earnings manipulation and provides examples of ways companies have manipulated earnings through premature revenue recognition or channel stuffing. Finally, it covers computer-assisted techniques for testing accounts receivable balances and aging.
An exercise whose objective is to enable auditors to express an opinion on whether the financial statements give a true and fair view (or equivalent) of the entity’s affairs at the period end and of its profit or loss (or income and expenditure) for the period then ended and have been properly prepared in
accordance with the applicable reporting framework (e.g. relevant legislation and applicable accounting standards) or where statutory or other specific requirements prescribe the term, whether the financial statements “present fairly”.
Here we have considered the Difference between the Bank balance as per Cash Book & the Pass book by preparation of the Bank Statement. The reasons of differences & importance of finding the variation is discussed.
An exercise whose objective is to enable auditors to express an opinion on whether the financial statements give a true and fair view (or equivalent) of the entity’s affairs at the period end and of its profit or loss (or income and expenditure) for the period then ended and have been properly prepared in
accordance with the applicable reporting framework (e.g. relevant legislation and applicable accounting standards) or where statutory or other specific requirements prescribe the term, whether the financial statements “present fairly”.
Here we have considered the Difference between the Bank balance as per Cash Book & the Pass book by preparation of the Bank Statement. The reasons of differences & importance of finding the variation is discussed.
This presentation is an overview of SA 320 (R). Prepared with Prof. S. Sircar.
Dr. Soheli Ghose ( Ph.D (University of Calcutta), M.Phil, M.Com, M.B.A., NET (JRF), B. Ed).
Assistant Professor, Department of Commerce,St. Xavier's College, Kolkata.
Guest Faculty, M.B.A. Finance, University of Calcutta, Kolkata
This is a step-by-step process on how to plan and carry out Auditing. This shall be useful for Accountants , professionals,small businesses,big businesses.
This presentation is an overview of SA 320 (R). Prepared with Prof. S. Sircar.
Dr. Soheli Ghose ( Ph.D (University of Calcutta), M.Phil, M.Com, M.B.A., NET (JRF), B. Ed).
Assistant Professor, Department of Commerce,St. Xavier's College, Kolkata.
Guest Faculty, M.B.A. Finance, University of Calcutta, Kolkata
This is a step-by-step process on how to plan and carry out Auditing. This shall be useful for Accountants , professionals,small businesses,big businesses.
These slides are of CH#14 of book Audit and Assurance (International). This book is used by ACCA Students for their F-8 paper. Hope it might helped you.
Business Combinations - Ind AS Implementation ChallengesAnkita6745
A business is an integrated set of activities and assets that is capable of being conducted or managed for the purpose of providing return in the form of dividends, lower costs or other economic directly to investors or other owners, members or participants.
1
WEEK 2 TEAM ASSIGNMENT
Week 2 Team Assignment
Learning Team B
ACC/492
7/24/16
Introduction
AUDIT PROGRAM FOR CASH
Risks
· Cash transactions may not be documented correctly
· Does cash exist
· Fraud
Steps
1. Discuss and document the routine for receiving and disbursing cash.
a) Sources of cash
b) Frequency of bank deposits
c) The person making the deposit
d) The various levels of cash received, is it appropriate
e) Documentation of expenditures (check requests, agreements, invoices…)
f) The approval process
2. Confirm selected bank accounts and special activities
For the petty cash funds (Is the petty cash voucher maintained properly?)
Are physical cash counts:
a) Conducted regularly by a person or people who are not direct guardians of the petty cash funds?
b) Reconciled with the petty cash voucher?
c) Documented the counts and reconciled against the petty cash voucher?
d) Are the petty cash funds restricted to only authorized personnel? Who has contact to funds?
For all checking accounts
a) Identify how many signatures are mandatory on each check.
b) Identify the process by which cash is received and how often.
c) Acquire bank statements for each bank account.
d) Identify the frequency and timing of the bank reconciliations. Who is responsible for the reconciliations?
e) Acquire bank reconciliations and test for accuracy.
f) Affirm if an additional person reviews bank reconciliations on a regular monthly basis. The review document should include the date of examination and a signature of the second person reviewing the bank reconciliation.
3. Test bank reconciliations
Choose bank accounts for confirmation in order to obtain a moderate to low level of assurance that the above mentioned audit purposes are achieved.
a) Test the mathematical accuracy of bank reconciliations
b) Trail-back to the book balances on the client’s bank reconciliation to the summary.
c) Trail-back to the balances on the client’s bank reconciliation to the bank statement.
d) Test reconciling items on the bank reconciliation by performing the following:
i) acquire previous month bank statement and supporting documents
ii) trace outstanding items listed on the bank reconciliation.
iii) trace deposits in transit listed on the bank reconciliation.
iv) get explanation of big, uncommon reconciling items and trace to supporting documents.
v) investigate any other unusual items.
Confirmation requests should be sent under our control and, second requests and, where warranted, third requests should be mailed when responses to confirmation requests have not been received within a reasonable time.
Consider sending a special inquiry letter to ascertain the existence of special arrangements or restrictions, for example, compensating balance arrangements, security arrangements, written guarantees.
4. Review confirmations received
For confirmations received:
a) compare account information and account balance to matching summary.
...
Identify the type of evidence for each procedure Procedure Type of Evi.docxMaxd78Pipero
Identify the type of evidence for each procedure
Procedure Type of Evidence Discuss the duties of the cash disbursements clerk with him and observe whether he has responsibility for handling cash or preparing the bank 1. reconciliation. Inspection Examine the internal auditor's initials on monthly bank reconciliations as 2. an indication of whether they have been reviewed. Account for a sequence of checks in the cash disbursements journal to 3. determine whether any have been omitted. Analytical procedures Examine vendors' invoices and other supporting documents to determine whether large amounts in the repair and maintenance account should be Confirmation 4. capitalized. Inquire about the accounts payable supervisor's monthly review of a computer-generated exception report of receiving reports and purchase Documentation 5. orders that have not been matched with a vendor invoice. Inquiries of the client Foot the accounts payable trial balance and compare the total with the 6. general ledger. Inquiries of the client and observation 7. Confirm accounts payable balances directly with vendors. Inspection 8. payable. Observation 9. comparison takes the increase in payroll tax rates into account. Physical examination 10. recorded transactions in the acquisitions journal. Recalculation Reperformance
.
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5. OBJECTIVES &
PROCEDURES:
Completeness
Objective: determine whether all
receivables, sales, cash of period are
presented in financial statements
Procedures
Examine documents
Apply analytical procedures
Cutoff bank statements, bank
reconciliations, etc.
5
GBW 8th ed. Ch. 11
9. AUDIT RISK MODEL
AR = CR x IR x DR
Detection risk (DR): likelihood that error
could occur & not be detected
Based on
Control risk (CR)
Likelihood of material error
Inherent risk (IR)
Strategies & threats
9
GBW 8th ed. Ch. 11
10. DETECTION RISK
DR = ____AR___
IR x CR
Nature, extent, timing substantive tests
Nature: more/less persuasive tests
Extent: larger/smaller samples
Timing: balance sheet date or interim
10
GBW 8th ed. Ch. 11
11. ASSERTIONS &
PROCEDURES
Accounts Receivable, Sales-1
Valuation
Verify mathematical accuracy AR
Obtain aged trial balance
Foot trial balance
Compare total AR per trial balance to
general ledger
11
GBW 8th ed. Ch. 11
12. ASSERTIONS &
PROCEDURES
Accounts Receivable, Sales-2
Existence, rights, valuation
Confirm year-end accounts & notes
receivable with debtors
Positive: tell auditor if balance correct
Large balances, inaccuracies
Negative: tell auditor only if balance
incorrect
Control adequate, small balances
12
GBW 8th ed. Ch. 11
13. ASSERTIONS &
PROCEDURES
Accounts Receivable, Sales-3
Existence or occurrence, completeness
Test cutoff to determine whether sales,
receivables recorded in proper period
FOB shipping point
FOB destination
13
GBW 8th ed. Ch. 11
17. TESTING CUTOFF
Sales, Receivables
At or around end each quarter, the former
President directed his subordinates to hold
IGI’s books open, to backdate invoices,
shipping documents. This caused IGI to
record out-of-period sales & to overstate
revenue, net income end each quarter.
Procedures
Trace recorded sales to shipping documents
before, after end of period
17
GBW 8th ed. Ch. 11
22. TESTING CUTOFF FOR
CASH
Reconcile internal documents
Cash journals
General ledger
Bank reconciliations
With external documents
Year-end bank statement
Cutoff bank statements
Bank confirmations
22
GBW 8th ed. Ch. 11
23. REVENUE RECOGNITION
& EARNINGS
MANIPULATION
Increasingly, I have become concerned that the
motivation to meet Wall Street earnings
expectations may be overriding common
sense business practices.
Arthur Levitt, Jr., “The ‘Numbers Game.” Speech NYU, 1998.
23
GBW 8th ed. Ch. 11
24. REVENUE
RECOGNITION
SAB 104
Criteria
Persuasive evidence of arrangement exists
Delivery has occurred or services rendered
Seller’s price fixed or determinable
Collectibility reasonably assured
24
GBW 8th ed. Ch. 11
25. COMMON MEANS TO
MANIPULATE EARNINGS -
1
Method Revenue Recognition Error
Bill & hold Shipments to 3rd party warehouses
Cancelled orders Cancelled, duplicate orders
Conditional sales Before contingencies resolved
Consignment sales Goods on consignment, trial
Continuing Seller involved after delivery, e.g.,
involvement installation
Improper cutoff Before title, risk ownership passed
25
GBW 8th ed. Ch. 11
26. COMMON MEANS TO
MANIPULATE EARNINGS -
2
Method Revenue Recognition Error
Kickback sales Inflated selling price for kickback
Overstated Inflated % completion on construction
completion projects
Partial shipments Not all goods ordered are shipped
Pre-invoicing Goods still in production
Premature Goods ordered but not authorized for
shipment shipment
26
GBW 8th ed. Ch. 11
27. COMMON MEANS TO
MANIPULATE EARNINGS -
3
Method Revenue Recognition Error
Premature sales Goods ordered but not shipped
Sham sales False shipments
Side agreements To forestall completion earnings
process
Uncertain Seller’s performance uncertain
performance Collection uncertain, unlikely
Uncertain realization
Unauthorized Shipments not authorized
shipment
27
GBW 8th ed. Ch. 11
28. MANIPULATED EARNINGS
Channel Stuffing
Definition: incentives to induce
incremental demand
Examples
Bausch & Lomb
Told distributors to buy large amount of inventory
to maintain distributorship
B&L recognized extra $22 million
Sunbeam
Used price discounting to encourage customers
to hold 80 weeks of inventory
28
GBW 8th ed. Ch. 11
29. MANIPULATED EARNINGS
Asset Swaps
Definition: companies trading right to
use others asset
Examples
Global Crossing
Treated underseas cables as real estate
Recognized revenue by treating swap as sale
29
GBW 8th ed. Ch. 11
30. MANIPULATED EARNINGS
Other
Improper expense capitalization
Chambers Development
Capitalized landfill expenses after determining
earnings necessary to meet analysts
expectations
MicroStrategy
Recognized revenue before all services
provided for software sales
30
GBW 8th ed. Ch. 11