1. The document provides steps for developing audit objectives including understanding audit responsibilities and objectives, dividing financial statements into cycles, understanding management assertions and general/specific audit objectives.
2. It then provides examples of applying the audit cycle approach to a sample company, Hillsburg Hardware, outlining the general ledger accounts and journals included in each cycle.
3. Finally, it discusses key audit planning activities like understanding the client's business, assessing risks, developing the overall audit approach and audit program.
This document introduces a dictionary of commercial terminology aimed to help students of commercial studies as well as businesspeople. It contains definitions of important commercial terms selected to facilitate a beginner's understanding. The dictionary includes terms from A to D, defining words like abovementioned, abuse, account, agent, agreement, annual, approval, and average. The goal is to provide useful commercial terminology in an easy-to-understand format.
WQD2011 - Breakthrough Process Improvement - The Kanoo Group - Improving Visa...Dubai Quality Group
Breakthrough Process Improvement case study submitted by The Kanoo Gorup during 3rd Continual Improvement & Innovation Symposium organized by Dubai Quality Group's Continual Improvement Subgroup to celebrate World Quality Day 2011.
1. The document is a context diagram that shows the flow of information between an iKnow Company and its external entities, like customers and common carriers.
2. It depicts the key processes in iKnow's order entry, billing, shipping, and accounts receivable systems. These include order processing, credit checking, invoice preparation, order fulfillment, payment processing and sales reporting.
3. The major external entities that interact with iKnow's systems are customers, who place orders and make payments, and common carriers, who transport finished goods. Information flows between these entities and iKnow's internal systems and databases.
This document discusses performance management at Lynton Aviation. It begins with quotes from company executives emphasizing the importance of measuring performance. The document then outlines the complex functions and key areas within the company that need to be measured, such as engineering, police/utility services, and production reporting. It describes challenges in measuring performance across different business units and departments but with consistent metrics. The goal is to measure performance at the lowest level of people within the company.
The document describes a partnership between an accounting firm (CPA) and a financial services company (FPS) to provide business and financial consultancy services. The services include bookkeeping, payroll, tax preparation, management reporting, and financial planning. FPS recruits and services clients, while the CPA provides reviews, tax filings, and consulting. Both partners share ownership of the client base and revenue from recurring fees and consulting services. The partnership aims to streamline accounting processes, reduce costs, improve business performance, and provide valuable financial guidance to clients.
The document discusses financial supply chain management. It summarizes that the financial supply chain refers to the end-to-end trade processes and information that drive a company's cash, accounts, and working capital. It also compares physical supply chain management to financial supply chain management, noting they both involve the movement of documents, data, physical goods, and money. Key aspects of financial supply chain management discussed include order-to-cash cycles, accounts payable and receivable, cash management, working capital, and transaction costs.
This document provides notes to the consolidated financial statements of Anheuser-Busch Companies and Subsidiaries. It summarizes the company's significant accounting policies, including principles of consolidation, revenue recognition, foreign currency translation, valuation of securities, cash, inventories, fixed assets, intangible assets, delivery costs, advertising costs, financial derivatives, stock-based compensation, and income taxes. The notes also provide details on the composition of certain financial statement line items such as plant and equipment, changes in intangible assets, and the pro forma impact of expensing stock options.
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.
This document introduces a dictionary of commercial terminology aimed to help students of commercial studies as well as businesspeople. It contains definitions of important commercial terms selected to facilitate a beginner's understanding. The dictionary includes terms from A to D, defining words like abovementioned, abuse, account, agent, agreement, annual, approval, and average. The goal is to provide useful commercial terminology in an easy-to-understand format.
WQD2011 - Breakthrough Process Improvement - The Kanoo Group - Improving Visa...Dubai Quality Group
Breakthrough Process Improvement case study submitted by The Kanoo Gorup during 3rd Continual Improvement & Innovation Symposium organized by Dubai Quality Group's Continual Improvement Subgroup to celebrate World Quality Day 2011.
1. The document is a context diagram that shows the flow of information between an iKnow Company and its external entities, like customers and common carriers.
2. It depicts the key processes in iKnow's order entry, billing, shipping, and accounts receivable systems. These include order processing, credit checking, invoice preparation, order fulfillment, payment processing and sales reporting.
3. The major external entities that interact with iKnow's systems are customers, who place orders and make payments, and common carriers, who transport finished goods. Information flows between these entities and iKnow's internal systems and databases.
This document discusses performance management at Lynton Aviation. It begins with quotes from company executives emphasizing the importance of measuring performance. The document then outlines the complex functions and key areas within the company that need to be measured, such as engineering, police/utility services, and production reporting. It describes challenges in measuring performance across different business units and departments but with consistent metrics. The goal is to measure performance at the lowest level of people within the company.
The document describes a partnership between an accounting firm (CPA) and a financial services company (FPS) to provide business and financial consultancy services. The services include bookkeeping, payroll, tax preparation, management reporting, and financial planning. FPS recruits and services clients, while the CPA provides reviews, tax filings, and consulting. Both partners share ownership of the client base and revenue from recurring fees and consulting services. The partnership aims to streamline accounting processes, reduce costs, improve business performance, and provide valuable financial guidance to clients.
The document discusses financial supply chain management. It summarizes that the financial supply chain refers to the end-to-end trade processes and information that drive a company's cash, accounts, and working capital. It also compares physical supply chain management to financial supply chain management, noting they both involve the movement of documents, data, physical goods, and money. Key aspects of financial supply chain management discussed include order-to-cash cycles, accounts payable and receivable, cash management, working capital, and transaction costs.
This document provides notes to the consolidated financial statements of Anheuser-Busch Companies and Subsidiaries. It summarizes the company's significant accounting policies, including principles of consolidation, revenue recognition, foreign currency translation, valuation of securities, cash, inventories, fixed assets, intangible assets, delivery costs, advertising costs, financial derivatives, stock-based compensation, and income taxes. The notes also provide details on the composition of certain financial statement line items such as plant and equipment, changes in intangible assets, and the pro forma impact of expensing stock options.
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.
This document discusses implementing ACL software to help overcome challenges for small audit departments. It outlines the topics to be covered, including expectations, goals and challenges. Some key challenges mentioned are building the proper foundations, gaining management support and understanding, and communicating changes effectively. The document promotes designing a sustainable controls framework by engaging business leaders, leveraging experience, and updating frequently. It provides an overview of why ACL is a good data analytics software choice, allowing analysis of all available data from any source. Finally, it briefly outlines some pre-implementation steps like quantifying needs, selecting platforms/vendors, and establishing frameworks.
Yes, it is possible to give an adverse opinion on internal controls and an unqualified opinion on the financial statements.
The key factors that allow for this are:
1. The material weakness in internal controls relates specifically to the valuation process and oversight of a particular portfolio, not broader internal controls.
2. The auditors considered the material weakness in determining their audit approach but still obtained sufficient appropriate audit evidence to issue an unqualified opinion on the financial statements.
3. Management is responsible for the financial statements and internal controls, and the adverse internal controls opinion does not affect the auditors' opinion on the financial statements.
So in summary, while a material weakness in internal controls was identified, it did not per
This document provides an introduction to El Paso Corporation's Sarbanes-Oxley Section 404 compliance project. It outlines what employees will learn, including the purpose and requirements of SOX 404, what the project team has accomplished so far in documenting processes and controls, and the next steps of management's testing. It describes the roles of management in evaluating controls versus the external auditors in auditing the financial statements. Key parts of the project plan are summarized, including the timeline, organizational structure, and objectives of management's testing to validate that controls are operating effectively.
Auditing aicpa, assurance and attestation servicesbagarza
This chapter discusses other assurance and attestation services that CPAs can provide beyond traditional auditing. It covers assurance services that improve or report on information, including attestation services where CPAs provide assurance about matters that are the responsibility of another party. Examples of attestation services discussed include WebTrust and SysTrust assurances for electronic commerce, health care performance benchmarks, and agreed-upon procedures engagements. The chapter also describes review, compilation, and other types of attestation engagements CPAs can perform for non-public and public companies.
The document discusses the concepts of materiality and risk in auditing. It covers how materiality is used to determine the appropriate audit report and evaluate misstatements. The audit risk model components of inherent risk, control risk, and detection risk are explained along with how they impact evidence planning. Factors that influence the assessment of risks are also outlined.
Audit of the acquisition and payment cyclesellyhood
The document discusses the acquisition and payment cycle. It covers the key accounts and transactions in the cycle including acquisitions of goods and services, cash disbursements, and purchase returns and allowances. The document also describes the related business functions like processing purchase orders and cash disbursements. It discusses how e-commerce has impacted the cycle through electronic data interchange and business-to-business transactions over the internet. Finally, it outlines the audit procedures for the cycle including understanding internal controls, assessing risks, and designing tests of transactions and account balances like accounts payable.
This document contains 25 multiple choice questions related to auditing standards and procedures. The questions cover topics such as audit planning, analytical procedures, materiality, audit risk, knowledge of the client's business, and assessing the going concern assumption. They assess understanding of audit documentation requirements, engagement responsibilities, risk assessment, and forming an audit opinion.
The document discusses auditing procedures for trade receivables, trade payables, and inventories. It defines each account and outlines the purpose of auditing them. For each account, it describes relevant audit evidence, assertions, objectives, and specific procedures including confirming balances, testing aging reports, and ensuring cut-off. The procedures are aimed at validating existence, completeness, accuracy, and proper valuation and classification of amounts in the financial statements.
Audit evidence a framework (ppt ch7[1].pdf)bagarza
The document discusses audit evidence and the framework for gathering sufficient and appropriate evidence during an audit. It covers key aspects of planning evidence collection including determining what procedures to perform, how much evidence is needed, and when to perform procedures. The document also discusses commonly used audit procedures like observation, inquiry, confirmations, and analytical procedures as well as factors that influence the extent of audit procedures. It emphasizes the importance of properly documenting all audit evidence in the work papers.
This document discusses testing of controls during an audit. It provides details on the types of audit procedures used for testing controls, including physical examination, confirmation, documentation, observation, accuracy, analytical evidence, and client inquiry. The reliability of different types of evidence is also discussed, with physical evidence and confirmation considered the most reliable, followed by external documentation and tests of accuracy. Guidelines are provided around the extent of testing controls, including reliance on prior audits and testing controls related to significant risks in the current year. Examples are also given around sample sizes used for testing controls.
Lecture 21 expenditure cycle part i - accounting information systesm james ...Habib Ullah Qamar
the expenditure cycle, the physical phase, financial phase, the purchases system, the cash disbursement system, conceptual revenue cycle, manual revenue cycle and computer based accounting information systems
This document outlines the scope and content for Chapter 5 of an audit course. It covers understanding audit reports, the types of reports including unmodified and modified, and the elements and situations that result in each type of report. It also discusses the auditor's responsibilities, including maintaining professional skepticism and ensuring financial statements are free from material misstatement. The types of audits are defined as external, internal, and compliance audits.
The document discusses reserves, provisions, and the auditor's responsibilities regarding them. It defines reserves as amounts set aside out of profits that are not intended to meet existing liabilities or diminish asset values. Provisions are liabilities of uncertain timing or amount that are recognized when an outflow of resources is probable to settle a present obligation from a past event. The document provides guidance on measuring, using, and disclosing provisions according to accounting standards. It also distinguishes between reserves and provisions and discusses the various types of reserves like revenue, capital, sinking funds, and secret reserves. Finally, it outlines the auditor's responsibilities to evaluate the adequacy of provisions and ensure reserves are properly accounted for.
The document discusses the audit of the payroll and personnel cycle. It identifies key accounts and transactions such as wages payable, payroll taxes payable, and cash. It describes the related business functions like hiring, timekeeping, payroll preparation, payment, and tax filings. It outlines the objectives of understanding internal controls, assessing risks, and designing tests of controls and substantive procedures to audit the payroll accounts and transactions.
This document discusses the audit of a company's payroll cycle. It provides an overview of payroll and personnel functions, key internal controls related to payroll, and substantive audit procedures to test the payroll account. The internal controls discussed are adequate separation of duties, proper authorization of payroll activities, adequate documentation of transactions, physical control over assets and records, independent checks of payroll processing, proper preparation of tax forms, and timely payment of withheld taxes.
Lecture 23 expenditure cycle part ii -fixed assets accounting information sy...Habib Ullah Qamar
The document discusses fixed asset systems and their differences from inventory systems. Fixed asset systems process transactions for acquiring, maintaining, and disposing of long-term assets like land, buildings, and equipment. They record asset costs, depreciation, and location. Fixed asset transactions require approval since assets are long-term investments, unlike routine inventory purchases. Additionally, fixed assets are capitalized and depreciated over multiple periods, unlike inventories which are expensed immediately. The document also describes the acquisition, maintenance, and disposal processes in a computerized fixed asset system and the authorization and verification controls used.
Audit of the Payroll and Personnel Cycle _ Accounting & AudtingCarl Hebeler
This document discusses the audit of the payroll and personnel cycle. It identifies key accounts and transactions such as wages payable, payroll taxes payable, and cash. It describes the related business functions, documents, and internal controls. It provides guidance on assessing risks, testing controls, and performing substantive tests of transactions and account balances. These include analytical procedures to identify potential misstatements, as well as detailed tests of liability and expense accounts to ensure accurate cutoff and balances. The overall goal is to obtain sufficient evidence that payroll and personnel accounts are fairly stated in accordance with GAAP.
Basiz offers K1 services for US investors in investment funds, including foreign currency computation, stapled security analysis, section 1256 and PFIC analysis, wash sale computation, and reconciliation of temporary tax adjustments. They provide a range of fund administration and accounting services such as financial reporting, investor services, tax compliance, and fund accounting systems. Basiz aims to deliver better returns for clients through their proprietary processes and fund services expertise.
Founderfuel backoffice talk oct 4 2011Mark MacLeod
This document provides an overview of back office functions that are important for startups to establish. It discusses what constitutes a back office, including accounting, payroll, legal, investor relations and governance. It provides tips on setting up accounting systems, measuring business performance, hiring a CFO, and the types of financial reporting and metrics that investors expect startups to provide.
This document discusses implementing ACL software to help overcome challenges for small audit departments. It outlines the topics to be covered, including expectations, goals and challenges. Some key challenges mentioned are building the proper foundations, gaining management support and understanding, and communicating changes effectively. The document promotes designing a sustainable controls framework by engaging business leaders, leveraging experience, and updating frequently. It provides an overview of why ACL is a good data analytics software choice, allowing analysis of all available data from any source. Finally, it briefly outlines some pre-implementation steps like quantifying needs, selecting platforms/vendors, and establishing frameworks.
Yes, it is possible to give an adverse opinion on internal controls and an unqualified opinion on the financial statements.
The key factors that allow for this are:
1. The material weakness in internal controls relates specifically to the valuation process and oversight of a particular portfolio, not broader internal controls.
2. The auditors considered the material weakness in determining their audit approach but still obtained sufficient appropriate audit evidence to issue an unqualified opinion on the financial statements.
3. Management is responsible for the financial statements and internal controls, and the adverse internal controls opinion does not affect the auditors' opinion on the financial statements.
So in summary, while a material weakness in internal controls was identified, it did not per
This document provides an introduction to El Paso Corporation's Sarbanes-Oxley Section 404 compliance project. It outlines what employees will learn, including the purpose and requirements of SOX 404, what the project team has accomplished so far in documenting processes and controls, and the next steps of management's testing. It describes the roles of management in evaluating controls versus the external auditors in auditing the financial statements. Key parts of the project plan are summarized, including the timeline, organizational structure, and objectives of management's testing to validate that controls are operating effectively.
Auditing aicpa, assurance and attestation servicesbagarza
This chapter discusses other assurance and attestation services that CPAs can provide beyond traditional auditing. It covers assurance services that improve or report on information, including attestation services where CPAs provide assurance about matters that are the responsibility of another party. Examples of attestation services discussed include WebTrust and SysTrust assurances for electronic commerce, health care performance benchmarks, and agreed-upon procedures engagements. The chapter also describes review, compilation, and other types of attestation engagements CPAs can perform for non-public and public companies.
The document discusses the concepts of materiality and risk in auditing. It covers how materiality is used to determine the appropriate audit report and evaluate misstatements. The audit risk model components of inherent risk, control risk, and detection risk are explained along with how they impact evidence planning. Factors that influence the assessment of risks are also outlined.
Audit of the acquisition and payment cyclesellyhood
The document discusses the acquisition and payment cycle. It covers the key accounts and transactions in the cycle including acquisitions of goods and services, cash disbursements, and purchase returns and allowances. The document also describes the related business functions like processing purchase orders and cash disbursements. It discusses how e-commerce has impacted the cycle through electronic data interchange and business-to-business transactions over the internet. Finally, it outlines the audit procedures for the cycle including understanding internal controls, assessing risks, and designing tests of transactions and account balances like accounts payable.
This document contains 25 multiple choice questions related to auditing standards and procedures. The questions cover topics such as audit planning, analytical procedures, materiality, audit risk, knowledge of the client's business, and assessing the going concern assumption. They assess understanding of audit documentation requirements, engagement responsibilities, risk assessment, and forming an audit opinion.
The document discusses auditing procedures for trade receivables, trade payables, and inventories. It defines each account and outlines the purpose of auditing them. For each account, it describes relevant audit evidence, assertions, objectives, and specific procedures including confirming balances, testing aging reports, and ensuring cut-off. The procedures are aimed at validating existence, completeness, accuracy, and proper valuation and classification of amounts in the financial statements.
Audit evidence a framework (ppt ch7[1].pdf)bagarza
The document discusses audit evidence and the framework for gathering sufficient and appropriate evidence during an audit. It covers key aspects of planning evidence collection including determining what procedures to perform, how much evidence is needed, and when to perform procedures. The document also discusses commonly used audit procedures like observation, inquiry, confirmations, and analytical procedures as well as factors that influence the extent of audit procedures. It emphasizes the importance of properly documenting all audit evidence in the work papers.
This document discusses testing of controls during an audit. It provides details on the types of audit procedures used for testing controls, including physical examination, confirmation, documentation, observation, accuracy, analytical evidence, and client inquiry. The reliability of different types of evidence is also discussed, with physical evidence and confirmation considered the most reliable, followed by external documentation and tests of accuracy. Guidelines are provided around the extent of testing controls, including reliance on prior audits and testing controls related to significant risks in the current year. Examples are also given around sample sizes used for testing controls.
Lecture 21 expenditure cycle part i - accounting information systesm james ...Habib Ullah Qamar
the expenditure cycle, the physical phase, financial phase, the purchases system, the cash disbursement system, conceptual revenue cycle, manual revenue cycle and computer based accounting information systems
This document outlines the scope and content for Chapter 5 of an audit course. It covers understanding audit reports, the types of reports including unmodified and modified, and the elements and situations that result in each type of report. It also discusses the auditor's responsibilities, including maintaining professional skepticism and ensuring financial statements are free from material misstatement. The types of audits are defined as external, internal, and compliance audits.
The document discusses reserves, provisions, and the auditor's responsibilities regarding them. It defines reserves as amounts set aside out of profits that are not intended to meet existing liabilities or diminish asset values. Provisions are liabilities of uncertain timing or amount that are recognized when an outflow of resources is probable to settle a present obligation from a past event. The document provides guidance on measuring, using, and disclosing provisions according to accounting standards. It also distinguishes between reserves and provisions and discusses the various types of reserves like revenue, capital, sinking funds, and secret reserves. Finally, it outlines the auditor's responsibilities to evaluate the adequacy of provisions and ensure reserves are properly accounted for.
The document discusses the audit of the payroll and personnel cycle. It identifies key accounts and transactions such as wages payable, payroll taxes payable, and cash. It describes the related business functions like hiring, timekeeping, payroll preparation, payment, and tax filings. It outlines the objectives of understanding internal controls, assessing risks, and designing tests of controls and substantive procedures to audit the payroll accounts and transactions.
This document discusses the audit of a company's payroll cycle. It provides an overview of payroll and personnel functions, key internal controls related to payroll, and substantive audit procedures to test the payroll account. The internal controls discussed are adequate separation of duties, proper authorization of payroll activities, adequate documentation of transactions, physical control over assets and records, independent checks of payroll processing, proper preparation of tax forms, and timely payment of withheld taxes.
Lecture 23 expenditure cycle part ii -fixed assets accounting information sy...Habib Ullah Qamar
The document discusses fixed asset systems and their differences from inventory systems. Fixed asset systems process transactions for acquiring, maintaining, and disposing of long-term assets like land, buildings, and equipment. They record asset costs, depreciation, and location. Fixed asset transactions require approval since assets are long-term investments, unlike routine inventory purchases. Additionally, fixed assets are capitalized and depreciated over multiple periods, unlike inventories which are expensed immediately. The document also describes the acquisition, maintenance, and disposal processes in a computerized fixed asset system and the authorization and verification controls used.
Audit of the Payroll and Personnel Cycle _ Accounting & AudtingCarl Hebeler
This document discusses the audit of the payroll and personnel cycle. It identifies key accounts and transactions such as wages payable, payroll taxes payable, and cash. It describes the related business functions, documents, and internal controls. It provides guidance on assessing risks, testing controls, and performing substantive tests of transactions and account balances. These include analytical procedures to identify potential misstatements, as well as detailed tests of liability and expense accounts to ensure accurate cutoff and balances. The overall goal is to obtain sufficient evidence that payroll and personnel accounts are fairly stated in accordance with GAAP.
Basiz offers K1 services for US investors in investment funds, including foreign currency computation, stapled security analysis, section 1256 and PFIC analysis, wash sale computation, and reconciliation of temporary tax adjustments. They provide a range of fund administration and accounting services such as financial reporting, investor services, tax compliance, and fund accounting systems. Basiz aims to deliver better returns for clients through their proprietary processes and fund services expertise.
Founderfuel backoffice talk oct 4 2011Mark MacLeod
This document provides an overview of back office functions that are important for startups to establish. It discusses what constitutes a back office, including accounting, payroll, legal, investor relations and governance. It provides tips on setting up accounting systems, measuring business performance, hiring a CFO, and the types of financial reporting and metrics that investors expect startups to provide.
Labdhie Associates is a financial outsourcing firm that provides business process management and finance & accounting expertise. Their team has deep understanding of business processes and technical expertise to diagnose problems and offer solutions. Their goal is to understand client needs and exceed expectations by helping clients achieve their goals across operations, compliance, and management reporting. They offer services including bookkeeping, financial reporting, payroll processing, business plans, and tax returns. Their approach involves detailed planning, obtaining and processing input data, delivering outputs, and obtaining feedback to improve services. Clients can expect benefits like dedicated experts, flexible processes, aggressive pricing, data security, and commitment to high quality service.
Labdhie Associates is a financial outsourcing firm that provides business process management and finance & accounting services. Their team of experts can help clients achieve their goals across operations, compliance, and management reporting. They offer a range of services including bookkeeping, financial reporting, payroll processing, and tax preparation using applications like QuickBooks, Tally, and Oracle. Labdhie prioritizes data security and quality control and believes their approach of thorough planning and feedback can deliver high-quality services to clients while also providing cost savings compared to in-house resources.
The first document describes the billing operations and customer payment processing procedures of Happy Valley Utility Company, including meter reading, billing, payment posting, and reporting.
The second document provides a context diagram and level 0 data flow diagram showing the flow of invoices, purchase orders, receiving reports, and payments between vendors, purchasing, receiving, and accounts payable at S&S.
The third document describes indicators of fraud such as conflicts of interest, false representations, efforts to conceal acts, and advocacy for weak internal controls, as well as weaknesses in payroll and accounts payable internal controls related to separation of duties, periodic checks, and payment authorization policies.
This document provides an overview of standard procedures for an Accounting Aid Society tax assistance program site. It outlines the roles and responsibilities of the site manager, screener, preparer, and site coordinator. These include setting up equipment, verifying client eligibility, preparing tax returns, quality reviewing returns, and securely backing up and submitting client information. The flow chart visually depicts the process clients go through from initial greeting to final return preparation and exit from the site.
1. Steps to Develop Audit Objectives
Understands objectives and
responsibilities for the audit
Divide financial statements
into cycles
Know management assertions
about financial statements
Know general audit objectives
for classes of transactions,
accounts, and disclousers
Know specific audit objectives
for classes of transactions,
accounts and disclousers
2. Transaction Flow from Journal to Financial Statements
TRANSACTIONS JOURNALS LEDGERS , TRIAL BALANCE,
AND FINANCIAL STATEMENTS
Sales Sales journal
Cash Receipts Cash receipts General ledger and
journal subsidiary records
Acquisition of Acquisitions
goods and services journal General ledger trial
balance
Cash Cash disbursements
Disbursements journal
Financial statements
Payroll Services Payroll Journal
and disbursements
Allocation and General Journal
adjusments
3. Cycles Applied to Hillsburg Hardware Co.
General Ledger Accounts Included in the Cycle (See Figure 6-4)
Journals Included in the
Cycle (See Figure 6-3, p.
Cycle 170) Balance Sheet Income Statement
s
Sales and Sales Journal Cash In bank Advertising
s
Colection Cash disbursement journal Inventories Travel and entertainment
s
General Journal Prepaid expenses Sales meetings and training
s
Land Miscellaneous sales expense
s
Building Sales and promotial literature
A
Computer and other equipment Travel and entertainment
A
Furniture and fixtures Stationery and supplies
A
Accumulated despreciation Postage
A
Trade accounts payable Telephone and fax
A
Other accrued payables Computer maintence and supplies
A
Accrued income tax Depreciation
Deferred tax Rent A
Legal fees and retainers A
A
Auditing and related services
A
Insurerance
A
Office repairs and maintenace expense
A
Expense
A
Miscellaneous office expense
A
Miscellaneous general expense
Gain on sale of assets
Income taxes
Payroll Payroll journal Cash in bank Salaries and commisions S
and personnel General journal Accrued payroll Sales payroll taxes S
A
Accrued payroll taxes Executive and office salaries
Adminastrative payroll taxes A
Inventory Acquisitions journal Inventories cost of goods sold
and warehousing Sales journal
Capital Acquisition Acquisition journal Cash in bank Interest expense
and repayment Cash disbursements journal Nites payable
General journal Long-term notes payable
Accrued interest
Capital stock
capital in excess of par value
Retained earnings
Devidens
Devidens payable
4. Relationships Among Transaction Cycles
General
cash
Capital acquisition and
repayment cycle
Sales and Acquisition and Payroll and
collection cycle payment cycle personel cycle
Inventory and
warehousing cycle
5. Four Phase of a Financial Statement Audit
Phase l Plan and design
an audit approach
Phase ll Perform tests of controls and
substantive tests of transactions
Phase lll Perform analytical procedures
and tests of details of balance
Phase lV Complete the audit and
issue an audit report
6. Relationships Among Auditing Standards, Types of Evidence,
and the Four Audit Evidence Decisions
Broad guidelines concerning
Auditing auditor qualifications and
standards conduct, evidence,
accumulation, and reporting
Qualifications Evidence Reporting
and conduct accumulation
Physical examination Broad categories of
confirmation Types of
evidence available for the
documentation evidence
auditor’s accumulation
analytical procedures
inquiries of client
recalculation Specific instructions for
reperformance Audit
the accumulation of types
observation procedures
of evidence
FOUR
AUDIT
EVIDENCE Sample size and Timing of
DECISIONS items to select tests
7. Information Often Confirmed
Information Source
Assets
Cash In bank Bank
Marketable securities Investment custodian
Accounts receivable Customer
Notes receivable Maker
Owned inventory out on consignment Consignee
Inventory held in public warehouses Public warehouse
Cash surrender value of life insurance Insurance company
Liabilities
Accounts payable Creditor
Notes payable Lender
Advances from customers Customer
Mortgages payable Mortagagor
Bonds payable Bondholder
Owners Equity
Shares outstanding Registar and transfer agent
Other Information
Insurance coverage Insurance company
Contingent liabilities Bank, lender, and client's legal counsel
bond indenture agreements Bondholder
Collateral held by creditors Creditor
8. Terms, Audit Procedures, and Types of Evidence
Term and Definition Illustrative Audit Procedure Type of Evidence
Examine a sample of vendor's inboices to determine Documentation
Examine-A reasonably detailed study of a document
whetever the goods or services received are
or record to determine specific facts about it.
reasonable and of the type normally used by the
client's business.
Scan the sales journal, looking for large and unusual Analytical procedures
Scan-A less-detailed examination of a document or transactions.
record to determine whetever there is something
unusual warranting further investigation.
Read -An examination of written information to Read the minutes of a board of directors meeting and Documentation
determaine facts pertinent to the audit. summarize all information that is pertinent to the
financial statements in an audit file.
Compute -A calculation done by the auditor Compute inventory turnover ratios and compare with Analytical procedures
independent of the client. those of previous years as a test of inventory
obsolescence.
Recompute -A calculation done to determine Recompute the unit sales price times the number of Recalculation
whetever a client's calculation is correct. units for a sample of duplicate sales invoices and
compare the totals with the calculations.
Foot the sales journal for a 1-month period and Recalculation
Foot -Addition of a column of numbers to determine compare all totals with the general ledger.
whetever the total is the same as the client's.
Trace- An instruction normally associated with Trace a sample of sales transactions from sales Documentation
documentation or reperformance. The instruction invoices to the sales journal, and compare customer
should state what the auditor is tracing and where it name, date and the dollar value of the sale.
is being traced from and to. Often, an audit
procedure that includes the term trace will also Trace postings from the sales journal to the general Reperformance
include a second instruction, such as compare or ledger accounts.
recalculate.
Compare -A comparison of information in two Select a sample of sales invoices and compare the Documentation.
different locations. The instruction should state unit selling price as stated on the invoice to the list of
which information is being compared in as much unit selling prices authorized by management.
detail as pratical.
Count-A determination of assets on hand at a given Count a sample 100 inventory items and compare Physical examination
time. This term should be associated with the type quantity and description to client's counts.
of evidence defined as physical examination.
Observe- The act of observation should be Observe whetever the two inventory caount teams Observation
associated with the type of evidence defined as independently count and record invntory counts.
observation.
Inquire-The act of inquiry should be associated with Inquire of management whetever there is any Inquiries of client
the type of evidence defined as inquiry. obsolete inventory on hand at the balance sheet
date.
Vouch -The use of documents to verify recorded Vouch a sample of recorded acquisition transactions Documentation
transactions or amounts. to vendor's invoices and receiving reports.
9. Audit File Contents and Organization
Financial statements
and audit report
Working trial balance
Adjusting journal entries
Contingent liabilities
Robinson associate
trial balance 12/31/11 Operations
Cash $ 165,237
Account 275,050 Liabilities and equity
Receivable 37,795
Prepaid Insurance 20,493
Assets
Interest Receivable
Analytical procedures
Tests of controls &
substantive TOT
Internal control
General Information
Audit programs
Permanent files
10. Planning an Audit and Designing an Audit Approach
Accept client and perform
initial audit plainnng
Understand the client’s
business and industry
Asses client
business risk
Perform preliminary
analytical procedures
Set materiality and assess
acceptable audit risk and
inherent risk
Understand internal
control and assess control
risk
Gather information to
assess fraud risks
Develop overall audit plan
and audit program
11. Strategic Systems Understanding of the Client’s Business and Industry
Understand Client’s
Business and lnustry
Industry and External
Environment
Objectives and
Strategies
Bussines Operations
and Processes
Measurement and
Performance
Management and
Governance
12. Understanding the Client’s Business and Industry, Client Business Risk, and Risk of Material
Misstatement
Industry and External Environment
Bussines Operations and Processes
Understand Cleint’s
Business and Industry
Management and Governance
Asess Client Business Objectives and Strategies
Risk
Measurement and Performance
Assess Risk of Material
Misstatements
13. New client acceptance Hillsburg is a continuing audit client. No circumstances were
and continuance identified in the conticuation review to cause discontinuance
Iddentify client’s There are two primary reasons. Company is publicly traded
reasons for audit and audit is required by bank due to large notes payable
Accept client and outstanding
perform initial
panning
Obtain an Obtained an engagement letter before starting field work.
understanding with
the client
Partner - Joe Anthony
Staff the engagement Manager - Leslie Franklin
Senior - Fran Moore
Assistant – Mich Bray and one person ro be named later
Understand client’s Anthony and Franklin subscride to industry publications.
industry and external Moore reviewed industry data and reports in several
environment database and online sources
Understand the
client’s business and
industry Understand client’s See Figure 8-3 (p. 217). Moore discussed with CEO and CFO,
operations, strategies, read minutes, and reviewed other key reports and
and performance performance indicators
system
Assess client business Moore used her understanding of the client and industry to
risk evaluate business risk.
Evaluate management Moore reviewed management and governance controls and
Assess client controls affecting their effct on business risk.
business risk business risk
Assess risk of material Moore used her assessment of client business risk and
misstatements management controls to identify audit areas with increased
risk of misstatement.
Perform Moore compared 12-31-11 anaudited balances to the prior
preliminary year. She calculated key ratios and compared them with
prior years and industry averages. All significant differences
analytical were identified for follow-up.
procedures
14. Timing and Purposes of Analytical Procedures
Phase
Purpose (Required) Planning (Required)
Phase Testing Phase Completion Phase
Understand the client's business
Primary purpose
and industry
Assess going concern Secondary purpose Secondary puprpose
Indicate possible misstatements
Primary purpose Secondary purpose Primary purpose
(attetion directing)
Reduce detailed tests Secondary purpose Primary purpose
15. Internal Comparisons and Relationships
Ratio or Comparison Possible Misstatement
Mistatement of inventory or cost of goods
Raw material turnover a
sold or obolance of raw meterial
manufacturing company
inventory
Sales commissions devided by Misstatement of sales commissions
net sales
Sales rerturns and allowances Misclassified sales return and allowances
devided by gross sales or unrecorded returns or allowances
subsequent to yeear-end
Bad debt expense devided by Misstatement in the allowance for bad
net sales debts
Each of the individual
Significant misstatement of individual
manufacturing expenses as a
expenses within a total
percent of total
16. Hilssburg Hardware Overall Test of Interest Expense December 31, 2011
Hilssburg Hardware Co.
Overall Test of Interest Expense Schedule N-3 date
12/13/2011 Prepared by TM 3/06/12
Approved by JW 3/12/12
Expectation of recorded interest eexpense :
Shrt-terms loans :
Month Month & Balance 1 Rate 2
Jan. $ 5,900,000.00 5.50%
Feb 6,368,000 5.50%
Mar. 6,824,000 5.75%
Apr. 7,536,000 5.75%
May 5,208,000 5.25%
June 3,748,000 5.50%
July 2,800,000 5.25%
Aug. 2,490,000 5.50%
Sept. 2,092,000 5.25%
Oct. 1,708,000 5.50%
Nov. 5,062,000 5.75%
Dec. 4,180,000 5.50%
Total 53,916,000 66.00%
Average Monthly Balance $ 4.493.000 5.50% $ 247.115
And Interest Rate
(Total 12 )
Long-Term Loans :
Beginning Balance $ 26.520.000
Ending Balance 24.120.000
$ 50.640.000 8.50%
Average $ 25.320.000 8.50% 2.152.200
Auditor expectation of interest expense 2.399.315
Recorded interest expense per general ledger 2.408.642
Difference-over (under) expectation 9.327
Conclusion : Interest expense appears fairly stated as recorded
Amount is within 9.327 (4.%) of expected amount.
Tickmark Legend :
1. Monthly balances obtained from general ledger for each month
2. Estimated based on examination of several notes outsanding each month
3. Agreed to prior year audit workpapers
4. Agrees with December 31, 2011 general ledger and working trial balance
5. Agrees with permanent file schedule of long-term debt.
17. Short Term Debt Paying Ability
Cash + marketable securities 8,28
Cash Ratio =
Current liabilities 13,216
Cash + marketable + securities +
net accounts receivable 828 + 18,957 + 945
Quick ratio = = 157
Current liabilities 13,126
Current assets 51,027
Current ratio = = 3.86
current liabilities 13,216
18. Liquidity Activity Ratios
Account receivable Net sales 143,086
= = 7.59
turnover average gross receivable ((18,957 + 1,240) + (16,210 + 1,311)) /2
Days to collect 365 days 365 days 48.09
= =
receivable account receivable turnover 7.59 days
Inventory Cost of goods sold 103,241
= = 3
Turnover Average inventoy (29,865 + 31,600) /2
Days to sell Current assets 365 days 108.63
= =
inventory Current liabilities 3.36 days
19. Ability to Meet Long-term Debt Obligations
Total liabilities 13,216 + 25,688
Debt to equity = = 1.73
Total equity 22,463
Times interset operating income 7,370
= = 3.06
earned interest expense 2,409
20. Earning per Net income 3,934
= = 0,79
share Average common shares outstanding 5,000
Gross profit Net sales - cost of goods sold 143,086 - 103,241
= = 27.85%
percent Net sales 143,086
Profit Operating Income 7,370
= = 0.05
Margin Net sales 143,086
Return on Income before taxes 5,681
= = 0.09
assets Average total assets (91,367 + 60,791)/2
Common Income before taxes-preferred dividends 5,681 - 0
= = 0.26
equity Average stockholders equity (22,463 + 20,429)/2
21. Steps in Applying Materiality
Set preminary judgement
Step 1 about materiality
Planning extent
of tests
Allocate preliminary judgment
Step 2 about materiality to segemnts
Estimate total misstatement in
Step 3 segment
Estimate the combined
Step 4 misstatement Evaluating results
Compare combined estimate
Step 5 with preliminary or revised
judgment about materiality
22. Audit Risk Model and Understanding the Client’s Business and Industry
Industry and External Environment
Business Operations and Processes
Understand Client’s
Management and Governance
Business and Industry
Objectives and Strategies
Understand Client’s
Business and Industry Measurenment and Performance
Understand Client’s
Business and Industry
AUDIT RISK MODEL
Inherent Risk Control Risk AAR
PDR =
(IR) (CR) IR x CR
23. Illustration of Differing Evidence Among Cycles
Sales and Acquisition and Payroll and Inventory and Capital Acquisition
Collection Cycle Payment Cycle Personel Cycle Warehousing and Repaymeny
Cycle Cycle
Auditor's assessment of
expectation of material Expect some Expect many Expect few Expect many Expect few
A mistatement before misstatemens misstatements misstatements misstatements misstatements
considering internal control
(inherent risk) (medium) (high) (Low) (high) (low)
Auditor's assessment of
effectiveness of internal Medium High High Medium
low effectiveness
B controls to prevent or effectiveness effectiveness effectiveness effectiveness
detect material
misstatements (control risk) (medium) (Low) (Low) (high) (medium)
Auditor's willingness to
permit material Low willingness Low willingness Low willingness Low willingness Low willingness
C misstatements to exist after
completing the audit
(Low) (Low) (Low) (Low) (Low)
(acceptable audit risk)
Extent of evidence the Medium level Medium level Low level High level Medium level
D auditor plan accumulate
(planned detection risk)
(medium) (medium) (high) (Low) (medium)
24. Relationship of Factors Influencing Risks to Risks and Risks to Planned Evidence
Reliance by external users Acceptable
Likelihood of financial failure audit risk
Intergrity of management
Nature of business
Results of previous audit
Initial versus repeat
engagement D D
Related parteis l
Nonroutine transactions Planned Planned
l l
Judgement required Inherent detection audit
Makeup of population risk risk evidence
Factors related to
misstatements arising from l D
fraudelent financial
reporting *
Susceptibility of assets to
misappropriation*
Effectiveness of internal
controls Control
risk
Planned reliance
D = Direct relationship ; l = inverse relationship
*Fraud risk factors. These may also affect acceptable audit risk and controls risk
25. Relationships of Risk to Evidence
Planned Amount of
Acceptable Inherent Control Detection Evidence
Situation Audit Risk Risk Risk Risk Required
1 High Low Low High Low
2 Low Low Low Medium Medium
3 Low High High Low High
4 Medium Medium Medium Medium Medium
5 High Low Medium Medium Medium
26. Evidence-Planning Worksheet to decide Tests of Details of Blances for Hillsburg
Hardware CO. - Accounts Receivable
Realizable value
Completensess
Classification
Detail tie-in
Accurancy
Existence
Cutoff
Rights
Acceptable audit
Medium Medium Medium Medium Medium Medium Medium Medium
risk
inherent risk Low Medium Low Low Low Medium Medium Low
Control risk-
sales
Control risk-
cash receipts
Control risk-
Additional controls
Subtantive tests of
transaction-sales
Subtantive tests of
transactions-cash receipts
Analytical
procedures
Planned detection risk for
tests of details of balances
Planned audit evidence for
tests of details of balances
27. Relationship of Tolerable Misstatement and Riks to Planned Evidence
TOLERABLE MISSTATEMENT PLANNED
AND RISKS AUDIT
EVIDENCE
Acceptable
audit risk
D D I
Inherent I Planned I Planned audit
Risk detection risk evidence
I D I
Control
Risk
Tolerable
misstatement
D = Direct Relationship ; l = Inerverse relationship
28. Five Components of Internal Control
Control Environment
Risk Control Information and Monitoring
Assesment Activities Communication
29. COSO Components of Internal Control
INTERNAL CONTROL
Component Description of Component Further Subdivision (if applicable)
Control Enivronment Actions, policies and Subcomponents of the control environment :
procedures that reflect the Intergrity and ethical values
overall attitude of top Commutment to competence
management, directors, and Board of director and audit committee participation
owners of an entity about Management's philosophy and operating style
internal control and its Organizational sturture
importance Human Resource policies and practices
Riks Assessment Management's identification Risk assessment processes :
and analysis of risks relevant Identify factors affecting risks
to the preparation of financial Assess significance of risks and likelihood of occurrence
statements in accordance with Determine actions necesarry to manage risks
appropriate accounting
frameworks such as GAAP or Categories of management assertions that must be satisfied :
IFRS Assertions about classes of transactions and other events
Assertions about account balances
Assertions about presentation and disclosure
Control Activities Policies and procedures that Types of specific control activities :
management has established Adequate separation of duties
to meet its objectives for Proper authorization of transaction and other occurence
financial reporting Adequate documents and records
Physical control over assets and records
Independent checks on performance
Information and Methods used to initiate, Transaction-related audit objectives that must be satisfied :
communication record, process, and report an Occurrence
entity's transactions and to Completeness
maintain accountability for Accuracy
related assets Posting and summarization
Classification
Timing
Monitoring Management's on going and Not Applicable
periodic assessment of the
quality of internal control
performance to determine
whether contorls are
operating as intended and are
modified when needed
30. Process for Understanding Internal Control and Assessing
Control Risk
Obtain and document
Phase 1 understanding of internal
control desihn and operation
Phase 2 Assess control risk
Design, perform and evaluate
Phase 3 tests of controls
Decide planned detection
Phase 4 risk and substantive tests
31. Control Risk Matrix for Hillsburg Hardware Co.-Sales
SALES TRANSACTION-RELATED AUDIT OBJECTIVES
accounts receivable master file and are correctly
Recorded sales are for shipments actually made
Sales are recorded on the correct dates (timing)
Sales transactions are correctly included in the
shipped and are correctly billed and recorded
Recorded sales are for the amount of goods
summarized (posting and summarization)
Sales transaction are correctly classified
Existing sales transaction are recorded
to notictitions customers (occurrence)
(completeness)
(classification)
(accuracy)
INTERNAL CONTROL
Credit is approved automatically by computer by comparison
to authorized credit limits (C1).
C
Recorded sales are supported by authorized shipping
documents and approved customer orders (C2).
C C
Separation of duties exists among billing, recording of sales,
and handling of cash receipts (C3).
C C C
Shipping documents are forwarded to billing daily and are
billed the subsequent day (C4).
C C
Shipping documents are prenumbered and accounted for
weekly (C5).
C C
CONTROLS
Batch totals of quantities shipped are compared with
quantities biled (C6).
C C C
Unit selling prices are obtained from the price list master file
of approved prices (C7).
C
Sales Transaction are internally verified (C8).
C
Statements are mailed to customers each month (C9).
C C C
Computer automatically posts transactions to the accounts
receivable subsidiary records and to the general ledger (C10).
C
Account receivable master file is reconciled to the general
ledger on monthly basis (C11).
C
There is lack of internal verification for the possibility of sales
DEFICIENCES
invoices being recorded more than once (D1).
D
There is a lack of control to test for timely recording (D2).
Med. Low Low Low Low * Med.
Assessed control risk
32. Evaluating Significant Control Deficiencies
SIGNIFICANCE
Material
Material Weakness
LIKELIHOOD
Remote Reasonably Possible
Immaterial
Source : Adapted from Michael Ramos,”Section 404 Compliance in
the Annual Report,”Journal of accountancy, October 2004, pp. 43-48
33. Differences in Scope of Controls Tested in an Audit of Internal Control and an
Audit of Financial Statements
Internal Controls Over Financial Reporting
Internal Controls Used to Assess Control
Risk Below Maximum
Controls that must be tested in an Controls that must be tested in an
audit of internal controls audit of financial statements
34. Summary of Understanding Internal Control and Assessing Control Risk
Intergrated Audit of
Financial Statements and
Internal Control over
Financial Statement Audit Financial Reporting
Obtain an understanding
Sufficient to audit
of internal control design PHASE 1
Sufficient to audit financial internal control over
and operation
statements financial reporting
Varies depending on Decide low for all
Decide control risk at the
extent and effectiveness objectives unless there
objective level for each
of controls and the are significant
transaction type
auditor’s planned deficiencies or material
reliance on controls weaknesses
Three alternatives
PHASE 2
Maximum Intermediate Low
Varies depending on
Plan and perform tests of Extensive tests for all
assessed level of controls
controls and evaluate objectives
risk
results
Revise for tests of Revise for tests of PHASE 3
Revise assessed control
controls results controls results
risk if appropriate
Likely to be more reliance on Likely to be less reliance
substantive tests, depending Plan detection risk and
on substantive tests due
on assessed control risk perform substantive tests
to extentive tests of
option selected considering control risks
controls
and other audit risk
model factors PHASE 4
Must communicate in
writing to those charged Must issue report on
Issue internal control internal control over
with governance describsing
report or letter financial reporting and
significant deficiencies or
material weaknesses issue a written
communication to audit
commutte describing
significant deficiencies or
material weakness