• Obtain an understanding of client environment, accounting, and control procedures.
• Document the decision to assess control risk at maximum
• Perform extensive but not 100% substantive audit on financial statement transactions and balances

Issued when 2 conditions exist:

1. There are no identified material weaknesses
2. There have been no restrictions on the scope of the auditor's work

• Income Statement
• It is expected to detect misstatements that aggregate

Indicate if this is test of control, substantive tests of transactions, analytical procedure, or test of details of balances:

Examine a sample of shipping document to determine whether each has a sales invoice number indicated on it.

Indicate if this is test of control, substantive tests of transactions, analytical procedure, or test of details of balances:

Discuss with the sales manager whether any sales allowances have been granted after the BS that may apply to the current period

Indicate if this is test of control, substantive tests of transactions, analytical procedure, or test of details of balances:

Compare the data on a sample of shipping documents throughout the year with related duplicate sales invoices and the AR master file

Indicate if this is test of control, substantive tests of transactions, analytical procedure, or test of details of balances:

Add the columns on the aged TB and compare the total with the general ledger.

Indicate if this is test of control, substantive tests of transactions, analytical procedure, or test of details of balances:

Companre the date on a sample of shipping documents a few days before and after the BS date with related sales journal transactions

Use audit risk model and state effects on CR, IR, desired AR, and planned evidence: (I, D, N, C)

During 2008, the company instituted merger discussions with The Orange Blossom Company

CR: No effect

IR: No effect

AR: Decrease

PE: Increase

Use audit risk model and state effects on CR, IR, desired AR, and planned evidence: (I, D, N, C)

Apple hired an experience internal auditor at the beginning of 2008. Around the same time, Apple institued a policy which allows customers to return any good for 120 days after purchase - no questions asked.

CR: Decrease

IR: Increase

AR: No effect

PE: Cannot determine from info provided

Use audit risk model and state effects on CR, IR, desired AR, and planned evidence: (I, D, N, C)

During 2008, Apple implemented a new ERP information system.

CR: Increase

IR: No effect

AR: No effect

PE: Increase

Use audit risk model and state effects on CR, IR, desired AR, and planned evidence: (I, D, N, C)

You discouver that Larry Lancaster has not filed his personal tax returns for the past 3 years.

CR: No effect

IR: Increase

AR: Decrease

PE: Increase

Use audit risk model and state effects on CR, IR, desired AR, and planned evidence: (I, D, N, C)

Apple has forecasted a $4 million operating cash deficiency for the next fiscal year.

CR: No effect

IR: No effect

AR: Decrease

PE: Increase

Identify the COSO Component of IC by the descriptive activity:

Policy manuals, accounting and financial reporting manuals, and a chart of accounts have been developed and implemented

Identify the COSO Component of IC by the descriptive activity:

Management is alert to complaints received from customers about billing errors

Identify the COSO Component of IC by the descriptive activity:

Preparing a bank reconciliation

Identify the COSO Component of IC by the descriptive activity:

Audit committee reviewing internal audit reports

Identify the COSO Component of IC by the descriptive activity:

Developing mechanisms to identify new regulatory proposals

Identify the COSO Component of IC by the descriptive activity:

Backing up data files

Identify the COSO Component of IC by the descriptive activity:

Transaction walk-throughs

1. Risk Assessment Procedures
2. Further Audit Procedures

1. authorization
2. recording
3. custody

Classify into one of the stated conditions for fraud:

Assets and revenues are based on significant estimates that involve subjective judgments and uncertainties that are hard to corroborate

Classify into one of the stated conditions for fraud:

The company is marginally able to meet exchange listing and debt covenant requirements

Classify into one of the stated conditions for fraud:

Significant operations are located and conducted across international borders in jurisdictions where differing business environments and cultures exist

• How and where they believe the entity's financial statements might be susceptible to material misstatement due to fraud
• How mgt could perpetrate and conceal fraudulent financial reporting
• How anyone might missappropriate assests of the entity
• How the auditor might respond to the susceptibility of material misstatement due to fraud

• Change the overall conduct of the audit
• Design and perform audit procedures to address fraud risks
• Design and perform procedures to address management override of controls

Existence

Accuracy

Cutoff

Which response to an AR confirmation at Dec. 31 raises most concern:

1. Amount was paid on Dec. 30
2. Received shipment on Jan. 2
3. Goods were returned for credit on Dec. 30
4. Balance does no reflect our sales discount for paying by Jan. 5th

• CR and Ir are set low
• The auditor feels he can obtain sufficient evidence performing alternative procedures

Client: Apple Blossom Cologne Company

Prepared by and Date: NEV 12/31/2010

Reviewed by and Date:

Overall Objectives: To test effectiveness of controls related to billing

Population Definition: Duplicate sales invoices and supporting documentation

Population Size: 800 sales invoices

Sampling Unit: Sales invoice number

Method Used to Select Sample & Refernce to Documentation: Computer generate random sample

Effect on Audit Plan

Effect on Report on Internal Control

Recommendation to Management