Audit Risk
Internal Controls
Revenue and Related Accounts
Acquisition and Payment Cycle
Cash and Other Liquid Assets
100
Risk that relates to the recording of transactions and the presentation of financial data in an organization's financial statements.
What is financial reporting risk?
100
Risk Assessment, Control Environment, Control Activities, Information and Communication, Monitoring.
What are the components of internal control?
100
The process ranging from the initiation of a sales transaction, to shipping a product , billing the customer, and collecting cash for the sale or writing off of uncollectible receivables.
What is the revenue cycle?
100
Requisition for goods or services, purchase of goods or services according to company policies, receipt of and accounting for goods and services, approval of items for payments and cash disbursements.
What is the acquisition and payment cycle?
100
Existence, completeness, rights and obligations, valuation and presentation and disclosure.
What are the five management assertions relevent to cash and other liquid assets?
200
The risk that the auditor expresses an audit opinion that the financial statements are fairly presented when they are materially misstated.
What is audit risk?
200
Security locks to limit access to computer facilities; inventory warehouse with fences careful key distribution and environmental (climate) control; vaults, safes and similar items to limit access to cash and other liquid assets; physical segregation and custody to limit access to records and documents to those authorized; security controls regarding access to comupter systems.
What are physical controls to safeguard assests?
200
Excessive credit memos after the end of the fiscal year, customer complaints and discrpancies in AR confirmations, missing or altered source documents or the inability of the client ot produce original documents in a reasonable period of time, sales to customers in the last month of the fiscal period at terms more favorable than previous months.
What are potential risk factors in the revenue cycle?
200
Employee theft of inventory, employee schemes involving ficticious vendors as means to transfer payments to themselves, executives misusing travel and entertainment accounts and charging them as company expenses, schemes to classify expenses as assets.
What are fraud risks related to the acquisition and payment cycle?
200
It can be misappropriated because (1) individual transactions vary greatly in size and (2) it is the most negotiable financial instrument.
What is cash is an inherently risky asset?
300
The honesty and trustworthiness of management as exemplified by past and current actions.
What is management integrity?
300
A term used to describe the documents and records that allow a user or auditor to a transaction from its origination through to its final disposition or vice versa.
What is an audit trail?
300
A technique used to cover up the embezzlement of cash whereby a cash collection from one customer is stolen by an employee who takes another copmany's payment and credits the fist customer. This process continues and at any point in time at lease one customer's account is overstated.
What is lapping?
300
Approval typically involving the vendor invoice, the purchase order, and the receiving report. This can be a manual or automated process.
What is the three-way match process?
300
Separation of duties, restrictive endorsement of customer checks, independent bank reconciliation, computerized control totals and edit tests, authorization of transactions, periodic internal audits, and competent well-trained employees.
What are internal controls to minimize inherent risks associated with cash?
400
The magnitude of an omission or misstatement of accounting information that, in view of surrounding circumstances, makes it probable that the judgement of a reasonable person relying on the information would have been changed or influenced by the omission or misstatement.
What is materiality?
400
An audit in which the same auditor must attest to both the financial statements and management's assertions regarding the effectiveness of internal controls over financial reporting.
What is an integrated audit?
400
A request to customers asking them to respond directly to the auditor if they agree or disagree iwth the indicated balance.
What is a positive connfirmation?
400
All purchases are authorized, there is timely accurate and complete recording of intentory transactions, receipt of inventory is properly accounted for and independently tested to verify adherence to company standards, all products are systematically reviewed for obsolescense and appropriate accounting action is taken.
What are internal controls for inventory?
400
An audit document that lists all transfers between client bank accounts starting a short period before year end and continuing for a short period after year end to assure that cash in transit is not recorded twice.
What is a bank transfer schedule?
500
The susceptibiltiy fo an assertion to a misstatement, because of error or fraud, that could be material, individually or in combination with other misstatements, before consideration of any related controls.
What is inherent risk?
500
A deficiency, or combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of the company's financial reporting.
What is a significant deficiency in internal control?
500
Procedures applied to transactions selected from those recorded during the end of fiscal period to provide evidence as to whether the transactions have been recorded in the proper period.
What are cutoff tests?
500
Observe all inventory locations simultaneously, confirm inventories at locations that are outside the entity, compare carrying inventory amounts to recent sales amounts, send confirmations to vendors confirming invoices and unusual terms.
What are procedures to be performed when there is a heightened risk of fraud?
500
Lockboxes, Electronic Funds Transfers, Agreements with Financial Institutions.
What are controls for cash management techniques?
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