Term
what are the primary transactions in the sales and collection cycle ? |
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Definition
“credit sales”
accounts receivable x.xx
sales x.xx
“cash receipts”
cash x.xx
accounts rec x.xx |
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Term
| Under SEC, what is the four criteria that need to be satisfied to recognize revenue? |
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Definition
1. Persuasive evidence of the arrangement existing
2. Delivery has occured or services have been provided
3. Seller's price is fixed
4. Collectibility is reasonably assured |
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Term
| 3rd Standard of Fieldwork |
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Definition
| The auditor must obtain sufficient, appropriate audit evidence by perform audit procedures to afford a reasonable basis for an opinion regarding the financial statements under audit. |
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Term
| 2nd Standard of Fieldwork |
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Definition
| The auditor must obtain sufficient understanding of the entity and its environment including its internal controls to assess the risk of material misstatement of the financial statements whether due to fraud or error, and to design the nature, timing, and extent of further audit procedures. |
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Term
| What steps must we document to demostrate a minimal understanding of the accounting system? |
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Definition
1) The initiation into the financial statements (flowchart), and
2) assessment of Control Risk for each of the 5 management assertions |
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Term
| What are the 5 management assertions about Classes of Transactions? |
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Definition
1. Occurrence
2. Completeness
3. Accuracy
4. Classification
5. Cutoff |
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Term
| What is detection risk at the starts of every audit and how is it reduced? |
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Definition
| Detection risk begins at 1 and is reduced by performing substantive tests |
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Term
| What is the audit risk model? |
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Definition
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Term
| What are the four assertions about account balances? |
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Definition
1. Existence
2. Completeness
3. Valuation and allocation
4. Rights and obligations |
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Term
| What is the primary purpose of accounts receivable confirmation? |
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Definition
| to satisfy the existence, accuracy, and cutoff objectives |
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Term
| What are the two types of confirmations? |
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Definition
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Term
| What is a positive confirmation? |
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Definition
| a communication addressed to the debtor requesting the recipient to confirm directly whether the balance as stated on the confirmation request is correct or incorrect |
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Term
| What is a negative confirmation? |
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Definition
request for the recipient to reponsed only when the debtor disagrees with the stated amount
no second requests or follow-up of nonresponses exist |
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Term
Sales Journal
In the Sales Journal, are you going to audit the
last 25 entries prior to 12/31/10
or
the first 25 entries after 1/1/11?
Vouch or Trace? |
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Definition
Last 25 entries prior to 12/31/10
Vouch
FS => GL => Journal => Supporting evidence |
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Term
| What is it to Vouch and what is the direction to follow? |
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Definition
To look for whether all items recorded in the FS are VALID.
FS => GL => Journal => Supporting Evidence
Supports management's assertion for EXISTENCE. |
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Term
| What is it to Trace and what is the direction to follow? |
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Definition
To look for whether all items in the source documents (supporting evidence) are RECORDED in the FS.
Supporting Evidence => Journal => GL => FS
Supports management's assertion for COMPLETENESS. |
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Term
What evidence will it provide if we Vouch the last 25 entries in the Sales Journal,
prior to 12/31/10,
to Shipping Documents which indicate the goods were shipped after 1/1/11? |
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Definition
| To assure that the cutoff assertion is not violated and that Sales actually did occur on the date as stated |
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Term
Do you want to sample the last 25 orders that were loaded on the truck and
shipped prior to 12/31/10
or
sample the first 25 orders that were shipped in January 2011?
Vouch or Trace? |
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Definition
Sample the first 25 orders that were shipped in Januarty 2011 because the business may have recorded the sale as of the 2010 to overstate revenue, when in fact it occured in 2011 and shipped that year.
Vouce (existence) |
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Term
| What opinion do we issue while performing substantive tests we find material misstatement in the financial statements and the client refuses to adjust their financial statements? |
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Definition
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Term
Cash Receipts Journal
Are you going to audit the
last 25 entries in the CR Jnl prior to 12/31/10
or
the first 25 entries in the CR Jnl after 1/1/11?
Vouch or Trace? |
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Definition
Last 25 entries in CR Jnl to 12/31/10
Vouch (existence) |
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Term
Cash Disbursements Journal
Will you audit the
last 25 entries in the CD Jnl prior to 12/31/10
or
first 25 entries in the CD Jnl after 1/1/11?
Vouch or Trace? |
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Definition
first 25 entries in the CD Jnl after 1/1/11
Trace (completeness) |
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