The document discusses various concepts related to auditing, including control risk, inherent risk, detection risk, internal controls, substantive tests, and revenue recognition. It provides definitions and examples for these terms. For instance, it defines control risk as the risk that a misstatement will not be prevented or detected by internal controls. It also gives examples of improper revenue recognition schemes and discusses testing controls related to the revenue cycle.
The Importance of Internal Controls in Fraud Prevention Rea & Associates
Presentation made by Ohio Accounting Firm, Rea & Associates, on the how strong internal controls can help Ohio companies deter fraud in the workplace. Special attention is given to the 5 components of internal controls and how to diffuse the traingle of fraud.
Corruption is a form of dishonesty or criminal offense or undertaken by a person. The presentation is about CAG’s Regulations and Standing orders in relation to cases of Fraud and Corruption Prepared by Pramod Kumar Jain,
Faculty in RTI Jaipur for information of user
The Importance of Internal Controls in Fraud Prevention Rea & Associates
Presentation made by Ohio Accounting Firm, Rea & Associates, on the how strong internal controls can help Ohio companies deter fraud in the workplace. Special attention is given to the 5 components of internal controls and how to diffuse the traingle of fraud.
Corruption is a form of dishonesty or criminal offense or undertaken by a person. The presentation is about CAG’s Regulations and Standing orders in relation to cases of Fraud and Corruption Prepared by Pramod Kumar Jain,
Faculty in RTI Jaipur for information of user
The Auditors Responsibilities Relating to Fraud in an Audit of Financial Stat...Dr. Soheli Ghose Banerjee
This presentation is an overview of SA 240 (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
Effective Internal Controls (Annotated) by @EricPesikEric Pesik
Instilling good governance and ensuring full compliance with an effective internal control program. Presented at Corruption and Compliance South & South East Asia Summit, September 2012, Hilton Hotel, Singapore.
Improving and Implementing Internal ControlsTommy Seah
Implementing and Improving Internal Controls
Articulating the increasing need for comprehensive in-house fraud control procedures
• Optimizing the accuracy and reliability of data acquired through internal inspections
• Detailing the process of applying controls inside the organization, and demonstrating the outcome
Payroll fraud is the most common form of employee theft and of all the accounting fraud scams it’s one of the hardest to detect. One of the difficulties in stopping payroll fraud is the different types of scams that exist. How can you implement policies, procedures and strategies to identify, eliminate and prevent payroll fraud?
Join Peter Goldmann, president of FraudAware as he outlines strategies for detecting and preventing payroll fraud.
Accounts Payable Fraud: Keys to Detection and PreventionCase IQ
An organization’s accounts payable (AP) department offers many opportunities for fraud – by both internal and external perpetrators. After all, any money leaving the organization goes through this department. Fortunately, many accounts payable fraud schemes are easy to detect, as long as you know what to look for. They are also preventable, with strong controls and oversight.
Join Peter Goldmann, CFE and president of FraudAware, as he outlines strategies for detecting and preventing accounts payable fraud.
The webinar will cover:
Common accounts payable fraud schemes
Red flags of accounts payable fraud
How to implement effective accounts payable fraud detection measures
Best practices for accounts payable fraud prevention
Prevention and detection strategies from actual AP fraud cases
For more course tutorials visit
www.newtonhelp.com
ACC 492 Final Exam (All Possible Questions) (2019 Syllabus)
ACC 492 Week 1 Current Issue Summary
ACC 492 Week 1 Current Issue Summary Behind the Numbers Insights into Large Audit Firm Sampling Policies
(2019 Syllabus)
ACC 492 Week 2 Team Assignment
492 Final Exam (All Possible Questions) (2019 Syllabus)
ACC 492 Week 1 Current Issue Summary
ACC 492 Week 1 Current Issue Summary Behind the Numbers Insights into Large Audit Firm Sampling Policies
(2019 Syllabus)
Acc 492 new Social Responsibility / tutorialrank.comPrescottLunt432
For more course tutorials visit
www.tutorialrank.com
ACC 492 Final Exam (All Possible Questions) (2019 Syllabus)
ACC 492 Week 1 Current Issue Summary
ACC 492 Week 1 Current Issue Summary Behind the Numbers Insights into Large Audit Firm Sampling Policies
(2019 Syllabus)
ACC 492 NEW Effective Communication/tutorialrank.comjonhson247
For more course tutorials visit
www.tutorialrank.com
ACC 492 Final Exam (All Possible Questions) (2019 Syllabus)
ACC 492 Week 1 Current Issue Summary
ACC 492 Week 1 Current Issue Summary Behind the Numbers Insights into Large Audit Firm Sampling Policies
The Auditors Responsibilities Relating to Fraud in an Audit of Financial Stat...Dr. Soheli Ghose Banerjee
This presentation is an overview of SA 240 (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
Effective Internal Controls (Annotated) by @EricPesikEric Pesik
Instilling good governance and ensuring full compliance with an effective internal control program. Presented at Corruption and Compliance South & South East Asia Summit, September 2012, Hilton Hotel, Singapore.
Improving and Implementing Internal ControlsTommy Seah
Implementing and Improving Internal Controls
Articulating the increasing need for comprehensive in-house fraud control procedures
• Optimizing the accuracy and reliability of data acquired through internal inspections
• Detailing the process of applying controls inside the organization, and demonstrating the outcome
Payroll fraud is the most common form of employee theft and of all the accounting fraud scams it’s one of the hardest to detect. One of the difficulties in stopping payroll fraud is the different types of scams that exist. How can you implement policies, procedures and strategies to identify, eliminate and prevent payroll fraud?
Join Peter Goldmann, president of FraudAware as he outlines strategies for detecting and preventing payroll fraud.
Accounts Payable Fraud: Keys to Detection and PreventionCase IQ
An organization’s accounts payable (AP) department offers many opportunities for fraud – by both internal and external perpetrators. After all, any money leaving the organization goes through this department. Fortunately, many accounts payable fraud schemes are easy to detect, as long as you know what to look for. They are also preventable, with strong controls and oversight.
Join Peter Goldmann, CFE and president of FraudAware, as he outlines strategies for detecting and preventing accounts payable fraud.
The webinar will cover:
Common accounts payable fraud schemes
Red flags of accounts payable fraud
How to implement effective accounts payable fraud detection measures
Best practices for accounts payable fraud prevention
Prevention and detection strategies from actual AP fraud cases
For more course tutorials visit
www.newtonhelp.com
ACC 492 Final Exam (All Possible Questions) (2019 Syllabus)
ACC 492 Week 1 Current Issue Summary
ACC 492 Week 1 Current Issue Summary Behind the Numbers Insights into Large Audit Firm Sampling Policies
(2019 Syllabus)
ACC 492 Week 2 Team Assignment
492 Final Exam (All Possible Questions) (2019 Syllabus)
ACC 492 Week 1 Current Issue Summary
ACC 492 Week 1 Current Issue Summary Behind the Numbers Insights into Large Audit Firm Sampling Policies
(2019 Syllabus)
Acc 492 new Social Responsibility / tutorialrank.comPrescottLunt432
For more course tutorials visit
www.tutorialrank.com
ACC 492 Final Exam (All Possible Questions) (2019 Syllabus)
ACC 492 Week 1 Current Issue Summary
ACC 492 Week 1 Current Issue Summary Behind the Numbers Insights into Large Audit Firm Sampling Policies
(2019 Syllabus)
ACC 492 NEW Effective Communication/tutorialrank.comjonhson247
For more course tutorials visit
www.tutorialrank.com
ACC 492 Final Exam (All Possible Questions) (2019 Syllabus)
ACC 492 Week 1 Current Issue Summary
ACC 492 Week 1 Current Issue Summary Behind the Numbers Insights into Large Audit Firm Sampling Policies
Fraudulent financial reporting generally involves the recording of f.pdfanandshingavi23
Fraudulent financial reporting generally involves the recording of fraudulent journal entries,
particularly those involving post-closing adjustments and other types of nonstandard journal
entries.Auditors’ responsibility with respect to fraud, as presented in AU Section 316,
Consideration of Fraud in a Financial Statement Audit, requires auditors to presume that the risk
of management override of controls is always present and to test journal entries and other
adjustments for indications of possible material misstatements due to fraud.
Describes fraud and its characteristics.
SAS 99 defines fraud as an intentional act that results in a material misstatement that are done
financial statements. There are two types of fraud considered: misstatements arising from
fraudulent financial reporting and misstatements arising from misappropriation of assets . The
standard describes the fraud triangle. Generally, the three ‘fraud triangle’ conditions are present
when fraud occurs. First, there is an incentive or pressure that provides a reason to commit fraud.
Second, there is an opportunity for fraud to be perpetrated (e.g. absence of controls, ineffective
controls, or the ability of management to override controls.) Third, the individuals committing
the fraud possess an attitude that enables them to rationalize the fraud.
Requires sessions to discuss how and where the entity’s financial statements might be
susceptible to material misstatement due to fraud.
This requirement is a new concept in audit standards and it has two primary objectives. The first
objective is so the engagement team will have an opportunity for the seasoned team members to
share their experiences with the client and how a fraud might be perpetrated and concealed. The
second objective is to set the proper “tone at the top” for conducting the engagement. The
brainstorming session is to be conducted in a manner that models the proper degree of
professional skepticism and sets the culture for the entire audit.
The following steps involved in testing journal entries and other adjustments are addressed in
this Practice Aid and generally occur in the following order:
Step 1: Consider the risks of material misstatement due to fraud identified in planning the
engagement and their effect on the nature and extent of journal entry testing.
Step 2: Obtain an understanding of the entity’s financial reporting processes and the controls
over journal entries and other adjustments.
Step 3: Perform audit procedures to determine the completeness of the population of journal
entries and other adjustments.
Step 4: Identify and select journal entries and other adjustments for testing.
Step 5: Perform journal entry audit procedures, gather sufficient evidence, and document results.
The auditor should gather information necessary to identify risks of material misstatement due to
fraud by the following
SAS 99 requires auditors to ask management questions about their awareness and understanding
of fraud. Au.
A top-down approach begins at the financial statement level- It requir.docxjanettjz6sfehrle
A top-down approach begins at the financial statement level. It requires the auditor\'s understanding of the overall risk to internal control over financial reporting. Discuss how an auditor uses a top-down approach in the audit of internal control over financial reporting to select the controls to test. Compare and contrast a top-down approach versus a detailed approach in an audit. What would auditors gain from using a top-down approach?
Solution
Auditor should use top-down approach to the audit of internal control over financial reporting for selecting controls totest. The process begins with understanding overall risk to internal control. The auditor then focuses on entity-level controls and works down to significant accounts and disclosures and their relevant assertions. This approach directs the auditor\'s attention to accounts, disclosures, and assertions that present a reasonable possibility of material misstatement to the financial statements and related disclosures. The auditor then verifies his or her understanding of the risks in the company\'s processes and selects for testing those controls that sufficiently address the assessed risk of misstatement to each relevant assertion.
In Detailed audit approach each and every thing is been checked very minutely, this approach is designed to be used throughout the audit efficiently and effectively to focus on the nature, timing and extent of audit procedures in areas that are more responsible for material misstatement in the financial report.
It requires the auditor to first understand the entity and its environment in order to identify risks that may result in material misstatement in the financial statements and report. Then, auditor performs an assessment of those risks at both the financial report and assertion levels. The assessment involves considering a number of factors such as the nature of the risks, relevant internal controls and the required level of audit evidence.
It involves following steps
Understanding, which comes from identifying and assessing risk
Responding to identified risk
Concluding on areas of risk
Getting risk right which means acheaving Efficiency and effectiveness
Top down approach helps to get the understanding of entity its fianacial statemnst easily and in quite less time, with effeciency and effectivness. Top-down approach also analyzes risk by aggregating the impact of internal operational failures, as it is a three step process helps auditor to detect the frauds and risk easily and effeciently.
.
BCom Auditing and Corporate Governance Notes-1.pdfMystatus4
In this Slides we have Provided BCom Auditing and Corporate Governance most important Questions and Answers with some important Points and notes which helps you to score good marks.
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What are the major steps in a financial statement audit.pdfsarikabangimatam
A Financial Statement Preparation in Delaware consists of three main written records: the cash flow statement, the income statement, and the balance sheet. Companies issue financial statements to provide information about their financial performance and well-being. Financial statements are audited before they are released to the public. Verifying conformity with various regulations is done through auditing.
page 10 (4) In-house legal counsel. E. Be aware in evaluating ma.pdfalicesilverblr
page 10
(4) In-house legal counsel. E. Be aware in evaluating management's responses to inquiries that it
is often in the best position to perpetrate fraud. 13. Considering the results of analytical
procedures performed in planning the audit: A. When unexpected results occur, consider the risk
of material misstatement due to fraud. B. Perform analytical procedures on revenue during the
planning of the audit to identify unusual or unexpected relationships. C. Because analytical
procedures performed during planning often use data aggregated at a high level, results obtained
often only provide a broad initial indication about whether a material misstatement exists. 14. An
auditor should consider fraud risk factors, which are events or conditions that indicate
incentives/pressures to perpetrate fraud, opportunities to carry out fraud, or
attitude/rationalization to justify a fraudulent action: A. The auditor should use professional
judgment in determining whether a risk factor is present and in identifying and assessing the risk
of material misstatement due to fraud. B. While fraud risk factors do not necessarily indicate the
existence of fraud, they often are present when fraud exists. 15. Other information that should be
considered includes the discussion among audit team members, reviews of interim financial
statements, and the consideration of identified inherent risks. IDENTIFYING RISKS THAT
MAY RESULT IN A MATERIAL MISSTATEMENT DUE TO FRAUD 16. It is helpful when
identifying risks of fraud to consider the three conditions ordinarily present when a material
misstatement due to fraud ordinarily occursincentives/pressures, opportunities, and
attitude/rationalization. Fraud experts often refer to these three conditions as the fraud triangle.
17. The auditor should evaluate whether identified risks of material misstatement due to fraud
can be related to specific accounts, assertions, or whether they relate more pervasively to the
financial statements as a whole. 18. The identification of a risk of material misstatement due to
fraud includes consideration of the type of risk (fraudulent financial reporting or
misappropriation of assets), the significance of the risk, the likelihood of the risk, and the
pervasiveness of the risk. 19. A presumption of improper revenue recognition is a fraud risk. 20.
The auditor should always address the risk of management override of controls.
Fraud (previously referred to as irregularities)-Intentional misstatements or omissions of amounts
or disclosures in financial statements. Audits are concerned with misstatements arising from two
distinct types of acts: Fraudulent Financial Reporting - Intentional misstatements in financial
statements to deceive financial statement users. Misappropriation of assets (also referred to as
"defalcations")-Theft of company's assets the effect of which has not been appropriately reflected
in the financial statements. PROFESSIONAL SKEPTICISM BACKGROUND INFORMATION
(AU 230) 4. In ev.
Auditing Principles for college students. Audit Risk, Business Risk, Information Risk, Assurance, Auditing system, System process, Stages audit, External Auditors, Auditors Responsibility, Auditors independence, Auditors due care, professional skepticism, audit purpose, attestation, Financial reporting, Attestations, Assurance services, Audit services, Express an opinion, Reasonable assurance, Engagement planning, Types of fraud, Frauds, Employee fraud, Advance Business Consulting, jose cintron, mba4help.com, Auditing Principles for college students. Audit Risk, Business Risk, Information Risk, Assurance, Auditing system, System process, Stages audit, External Auditors, Auditors Responsibility, Auditors independence, Auditors due care, professional skepticism, audit purpose, attestation, Financial reporting, Attestations, Assurance services, Audit services, Express an opinion, Reasonable assurance, Engagement planning, Types of fraud, Frauds, Employee fraud, Advance Business Consulting, jose cintron, mba4help.com
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Honest Reviews of Tim Han LMA Course Program.pptxtimhan337
Personal development courses are widely available today, with each one promising life-changing outcomes. Tim Han’s Life Mastery Achievers (LMA) Course has drawn a lot of interest. In addition to offering my frank assessment of Success Insider’s LMA Course, this piece examines the course’s effects via a variety of Tim Han LMA course reviews and Success Insider comments.
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Synthetic Fiber Construction in lab .pptxPavel ( NSTU)
Synthetic fiber production is a fascinating and complex field that blends chemistry, engineering, and environmental science. By understanding these aspects, students can gain a comprehensive view of synthetic fiber production, its impact on society and the environment, and the potential for future innovations. Synthetic fibers play a crucial role in modern society, impacting various aspects of daily life, industry, and the environment. ynthetic fibers are integral to modern life, offering a range of benefits from cost-effectiveness and versatility to innovative applications and performance characteristics. While they pose environmental challenges, ongoing research and development aim to create more sustainable and eco-friendly alternatives. Understanding the importance of synthetic fibers helps in appreciating their role in the economy, industry, and daily life, while also emphasizing the need for sustainable practices and innovation.
Operation “Blue Star” is the only event in the history of Independent India where the state went into war with its own people. Even after about 40 years it is not clear if it was culmination of states anger over people of the region, a political game of power or start of dictatorial chapter in the democratic setup.
The people of Punjab felt alienated from main stream due to denial of their just demands during a long democratic struggle since independence. As it happen all over the word, it led to militant struggle with great loss of lives of military, police and civilian personnel. Killing of Indira Gandhi and massacre of innocent Sikhs in Delhi and other India cities was also associated with this movement.
Welcome to TechSoup New Member Orientation and Q&A (May 2024).pdfTechSoup
In this webinar you will learn how your organization can access TechSoup's wide variety of product discount and donation programs. From hardware to software, we'll give you a tour of the tools available to help your nonprofit with productivity, collaboration, financial management, donor tracking, security, and more.
How to Make a Field invisible in Odoo 17Celine George
It is possible to hide or invisible some fields in odoo. Commonly using “invisible” attribute in the field definition to invisible the fields. This slide will show how to make a field invisible in odoo 17.
Acetabularia Information For Class 9 .docxvaibhavrinwa19
Acetabularia acetabulum is a single-celled green alga that in its vegetative state is morphologically differentiated into a basal rhizoid and an axially elongated stalk, which bears whorls of branching hairs. The single diploid nucleus resides in the rhizoid.
2. Control Risk
The risk that a misstatement that could
occur in an assertion about a class of
transaction, account balance or disclosure
and that could be material, either
individually or when aggregated with
other misstatements, will not be prevented,
or detected and corrected, on a timely
basis by the entity’s internal control.
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3. Control Risk
Control risk is the probability that a material misstatement exists in an
assertion because that misstatement was not either prevented from
entering entity’s financial information or it was not detected and
corrected by the internal control system of the entity.
It is the responsibility of the management and those charged with
governance to implement internal control system and maintain it
appropriately which includes managing control risk.
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4. Assessing Control Risk
The auditor should assess control risk for relevant assertions by
evaluating the evidence obtained from all sources, including the auditor's
testing of controls for the audit of internal control and the audit of
financial statements, misstatements detected during the financial
statement audit, and any identified control deficiencies.
Control risk should be assessed at the maximum level for relevant
assertions (1) for which controls necessary to sufficiently address the
assessed risk of material misstatement in those assertions are missing or
ineffective or (2) when the auditor has not obtained sufficient appropriate
evidence to support a control risk assessment below the maximum level.
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5. Assessing Control Risk
When deficiencies affecting the controls on which the auditor
intends to rely are detected, the auditor should evaluate the
severity of the deficiencies and the effect on the auditor's
control risk assessments.
If the auditor plans to rely on controls relating to an assertion
but the controls that the auditor tests are ineffective because of
control deficiencies, the auditor should:
1.Perform tests of other controls related to the same assertion.
2.Revise the control risk assessment and modify the planned
substantive procedures as necessary.
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6. Substantive Test
A procedure used during accounting audits to check for errors and
material misstatements(monetary) in financial statements and
other financial documentation. A substantive test might involve checking
a random sample of transactions for errors, comparing account
balances to find discrepancies, or analysis and review of procedures used
to execute and record transactions.
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7. Inherent Risk
Inherent risk is the probability that, in the absence of internal controls,
material errors or frauds could enter the accounting system used to
develop financial statements. You can think of inherent risk as the
susceptibility of the account to misstatement. In other words “what could
go wrong?”—inherent risk is a function of the nature of the client's
business, the major types of transactions, and the effectiveness and
integrity of its managers and accountants.
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8. Inherent Risk in Receivables
Primary risk is net receivables will be overstated, because either
receivables have been overstated, or the allowance for
uncollectible accounts has been understated
Risks affecting receivables include:
Sales of receivables recorded as sales rather than financing
transactions
Receivables pledged as collateral
Receivables classified as current when likelihood of collection
is low
Collection of receivable contingent on uncertain future
events
Payment not required until purchaser sells the product
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9. Substantive Tests of Accounts
Receivable Existence & Occurrence
Valuation
– Are sales and receivables initially recorded at their correct
amount?
– Will client collect full amount of recorded receivables?
Rights and Obligations
– Contingent liabilities associated with factor or sales
arrangements
– Discounted receivables
Presentation and Disclosure
– Pledged, discounted, assigned, or related party receivables
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10. Substantive Tests of
Accounts Receivable
Obtain and evaluate aging of accounts
receivable
Confirm receivables with customers
Perform cutoff tests
Review subsequent collections of
receivables
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11. Detection Risk
Detection risk is the probability that audit procedures will fail to detect
material misstatements provided that any have entered the accounting
system in the first place and have not been prevented or detected and
corrected by the client's internal controls.
In contrast to inherent risk and control risk, auditors are responsible for
performing the evidence-gathering procedures that manage and
establish detection risk. These audit procedures represent the auditors'
opportunity to detect material misstatements in financial statements.
Unlike inherent risk and control risk, auditors can and do influence the
level of detection risk.
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12. Determine Detection Risk
Detection risk occurs when you don’t use the right audit
procedures or you don’t use them correctly. You assess
inherent and control risk and then solve your audit risk
equation by assigning detection risk to reduce your audit risk
to an acceptable level.
Keep in mind that you can never completely eliminate
detection risk because you’ll most likely never look at each
and every transaction. Your goal is to keep it to an acceptable
minimum.
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13. 3 Major elements of
Detection Risk:
Misapplying an audit procedure: A good example is when you’re using
ratios to determine if a financial account balance is at face value accurate
(reasonable), and you use the wrong ratio.
Misinterpreting audit results: You use the right audit procedure but just
flat out make the wrong decision when evaluating your results. Maybe
you decide accounts payable is fairly presented when it actually contains
a material misstatement.
Selecting the wrong audit testing method: Different financial accounts
are best served using specific testing methods. For example, if you want
to make sure a particular sale took place, you test for its occurrence —
not for whether the invoice is mathematically correct.
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14. Detection Risk
Detection risk represents the risk that the audit team's substantive
procedures will fail to detect a material misstatement. As auditors require
higher quality evidence (lower detection risk), they must gather more
relevant and reliable evidence (appropriateness) and evaluate a larger
number of transactions or components (sufficiency).
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15. Audit samples
Audit sampling is the application of an audit
procedure to less than 100 percent of the
items within an account balance or class of
transactions for the purpose of evaluating
some characteristic of the balance or class.
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16. Types of audit sample
There are two general approaches to audit
sampling: nonstatistical and statistical.
Both approaches require that the auditor use
professional judgment in planning, performing,
and evaluating a sample.
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17. Population
Sample items should be selected in such a
way that the sample can be expected to be
representative of the population.
The auditor should determine that the
population from which he draws the sample
is appropriate for the specific audit objective.
The population contains all items to be
considered for testing.
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18. Sample Unit
Sample items should be selected in such a
way that the sample can be expected to be
representative of the population.
Therefore, all items in the population should
have an opportunity to be selected.
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19. Attribute Samples
Attribute sampling plans represent the most
common statistical application used by
internal auditors to test the effectiveness of
controls and determine the rate of
compliance with established criteria. The
results of these plans provide a statistical
basis for the auditor to conclude whether the
controls are functioning as intended.
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20. Employee Fraud
Embezzlement is a type of fraud involving employees or nonemployees
wrongfully misappropriating funds or property entrusted to their care,
custody, and control, often accompanied by false accounting entries and
other forms of deception and cover-up.
Larceny is simple theft; for example, an employee misappropriates an
employer's funds or property that has not been entrusted to the custody of
the employee.
Defalcation is another name for employee fraud, embezzlement, and
larceny. Auditing standards also call it misappropriation of assets.
Errors are unintentional misstatements or omissions of amounts or
disclosures in financial statements.
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21. Types of Fraud
Financial statements may be materially misstated as a result of errors or
fraud.
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22. Business Risk
All businesses make a countless number of decisions each and every day.
Decisions to purchase or sell goods or services, lend money, enter into
employment agreements, or buy or sell investments depend in large part
on the quality of useful information. These decisions affect business
risk, the chance a company takes that customers will buy from
competitors, that product lines will become obsolete, that taxes will
increase, that government contracts will be lost, or that employees will
go on strike.
In other words, business risk is the risk that an entity will fail to meet
its objectives.
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23. Risk Assessment
An important part of the performance principle
is for auditors to identify important concerns
(or risks) they face in the audit. This process is
referred to as risk assessment and follows
engagement planning, as follows:
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24. Risk Assessment
The risk assessment process requires an understanding of the client, its
operating environment, and its industry. This includes internal controls
operating within the client's accounting information systems that
ultimately produce the client's financial statements. Internal control
may be defined as the policies and procedures implemented by an entity
to prevent or detect material accounting frauds or errors and provide for
their correction on a timely basis. Satisfactory internal control reduces
the probability of frauds or errors in the accounts.
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25. External Auditors
The purpose of obtaining and evaluating evidence is to ascertain the
degree of correspondence between the assertions made by the
information provider and established criteria. Auditors will ultimately
communicate their findings to interested users. To communicate in an
efficient and understandable manner, auditors and users must have a
common basis for measuring and describing financial information.
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26. Test of Control
Tests of Controls are audit procedures performed to test the operating
effectiveness of controls in preventing or detecting material
misstatements at the relevant assertion level.
An auditor might use inspection of documents, observation of specific
controls, reperformance of the control, or other audit procedures to
gather evidence about controls.
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27. Test of Control for A/P
Accounts Payable
transactions are reviewed to ensure payments are made to actual
company vendors and all invoices are properly coded and paid. A/P
aging schedules are also reviewed for large unpaid balances.
Fixed Assets
are reviewed to determine that the proper asset class has been assigned
and depreciation is being calculated correctly. Salvage values are also
tested to determine validity.
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29. Group work in class
Working with your computer find at least
6 revenue recognition schemes. Discuss
in class for the mayor.
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30. Samples of Improper Revenue
Recognition Schemes
Recognize revenue on fictitious shipments
Hidden side letters that give customers unlimited right to
return product
Record consignment sales as final sales
Accelerated recognition of sales occurring after year-end
Ship unfinished goods
Ship goods before date agreed to by customer
Create fictitious invoices
Ship goods never ordered
Ship more goods than ordered
Record shipments to company's warehouse as sales
Record shipments of replacement goods as new sales
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32. Revenue Cycle test
of controls
Several of the tests of controls can be done
using the computer. The auditor must first
evaluate the effectiveness of general
controls related to program changes and file
security. The auditor should make inquiries
and inspect documentation about changes
made to the programs and master files used for
sales orders, shipping, billing, and recording.
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33. Revenue Recognition
Similarly, the SEC believes that revenue generally is realized or
realizable and earned when all of the following criteria are met:
•
•
•
•
Persuasive evidence of an arrangement exists.
Delivery has occurred or services have been rendered.
The seller's price to the buyer is fixed or determinable.
Collectability is reasonably ensured.
To be recognized, revenues must be
(1) realized or realizable
(2) earned
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34. Revenue Cycle test
of controls
For testing sales orders, the auditor can
enter test data to evaluate program results for:
a missing or invalid customer number
an invalid product code
an order that exceeds the customer’s credit limit
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