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Chapter 7
Field Work - Continued
22
Accounting
Undergraduate 3
12/05/2013

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Cards

Term
Cash must be ___ and be free of ___.

Cash consists of ___, ___, & available ___.

Deposits (CDs) and short term paper are classified as ___.

___, ___ and ___ on hand are not classified as cash.
Definition
Cash must be readily available and be free of restrictions.

Cash consists of coins, currency and available funds.

Deposits (CDs) and short term paper are classified as temporary investments.

Post dated checks, travel advances and stamps on hand are not classified as cash.
Term
Since cash is the most liquid asset, internal control of cash is ___.

Controls must ____ unauthorized use of cash.

Management must have ___ ___ for proper use of cash.
Definition
Since cash is the most liquid asset, internal control of cash is imperative.

Controls must prevent unauthorized use of cash.

Management must have necessary information for proper use of cash.
Term
What are 3 internal controls over cash sales?
Definition
Cash sales:
- Involvement of two or more employees
- Cash Registers
- Electronic point of sales systems
Term
What are 6 internal controls over the collection of receivables?
Definition
Collections of receivables:
- Initial listing of cash receipts
- Custody and depositing of cash receipts
- Maintenance of customer account records
- Reconciliation of customers’ ledgers with control accounts
- Mailing monthly statements to customers
- Collection activity and past-due accounts
Term
What are 6 internal controls over the cash disbursements?
Definition
- Segregation of duties
- Payment by check or electronic funds transfer
- Match of purchase order and receiving documents with vendor’s invoice
- Review of supporting documents by authorized check signer
- Cancel of supporting documents
- Authorized check signer should mail checks
Term
Potential Misstatements-Cash Disbursements
Definition
- Inaccurate recording of a purchase or disbursement
- Duplicate recording and payment of purchases
- Unrecorded disbursements
Term
The reporting of cash depends on three things:
Definition
1) restricted cash
2) a bank overdraft or
3) a cash equivalent
Term
Compensating balances:
are amounts maintained by a ______ with a bank in support of existing _____ arrangements.

are identified as ________ separate from cash, if they relate to short-term loans.

are identified as __________ separate from cash, if they relate to long-term loans.
Definition
Compensating balances:
are amounts maintained by a corporation with a bank in support of existing borrowing arrangements.

are identified as current assets separate from cash, if they relate to short-term loans.

are identified as non-current assets separate from cash, if they relate to long-term loans.
Term
Bank overdrafts:

Overdrafts represent checks written in excess of ________.

Overdrafts are a _____.

During the audit, ____ is not allowed.
Definition
Bank overdrafts:

Overdrafts represent checks written in excess of cash account.

Overdrafts are a liability

During the audit, offsetting is not allowed.
Term
What are 6 internal controls over the revenue cycle?
Definition
- Controlling customers’ orders
- Credit approval
- Issuing merchandise
- Shipping
- Billing
- Adjustments to sales and receivables
Term
What are 6 revenue cycle documents?
Definition
- Customer purchase order
- Sales order
- Bill of lading
- Invoice
- Control listing
- Credit memo
Term
Receivables should be confirmed, unless:

Accounts receivable are ____.

The use of confirmations would be ____.

The auditors’ combined assessment of inherent and control risk is ___, and audit risk can be reduced to ___________ level with substantive tests.
Definition
Receivables should be confirmed, unless:

Accounts receivable are immaterial,

The use of confirmations would be ineffective, or

The auditors’ combined assessment of inherent and control risk is low, and audit risk can be reduced to acceptably low level with substantive tests
Term
What are the four types of confirmation?
Definition
1) Positive Confirmation
2) Black Confirmation Form
3) Invoice Confirmation
4) Negative Confirmation
Term
If a client tries to discourage the auditor from
sending confirmations to certain customers,
the auditor should consider the possibility
that the client is attempting to _______________________________________________________________________.
Definition
If a client tries to discourage the auditor from
sending confirmations to certain customers,
the auditor should consider the possibility
that the client is attempting to conceal
fictitious or known misstatements
of accounts receivable.
Term
After the items for confirmation have been selected, the auditor must _______________ of the confirmations until they are returned from the customer.
Definition
After the items for confirmation have been selected, the auditor must maintain control of the confirmations until they are returned from the customer.
Term
When positive confirmations are used,
SAS 67 requires ___________________
for confirmations not returned by
he customer.
Definition
When positive confirmations are used,
SAS 67 requires follow-up procedures
for confirmations not returned by
he customer.
Term
The most reliable evidence from confirmations is obtained when they are sent as close to the _________________ as possible, as opposed to confirming the accounts several months before year-end.
Definition
The most reliable evidence from confirmations is obtained when they are sent as close to the balance sheet date as possible, as opposed to confirming the accounts several months before year-end.
Term
When selecting a sample of accounts receivable for confirmation, the auditor should be careful to avoid being _________________________.
Definition
When selecting a sample of accounts receivable for confirmation, the auditor should be careful to avoid being influenced by the client.
Term
If a client tries to discourage the auditor from sending confirmations to certain customers, the auditor should consider the possibility that the client is attempting to _______ fictitious or known misstatements of accounts receivable.
Definition
If a client tries to discourage the auditor from sending confirmations to certain customers, the auditor should consider the possibility that the client is attempting to conceal fictitious or known misstatements of accounts receivable.
Term
What are 5 controls for inventory observation?
Definition
1) Proper instructions for the physical count
2) Supervision by responsible personnel
3) Independent interval verification of the counts
4) Independent reconciliations of the physical counts with perpetual inventory master files
5) Adequate control over count sheets or tags
Term
The most important part of the observation of inventory is determining whether the ______________ is being taken in accordance with the client’s instructions.
Definition
The most important part of the observation of inventory is determining whether the physical count is being taken in accordance with the client’s instructions.
Term
What are 6 Considerations in Planning a Physical Inventory
Definition
- Selecting of the appropriate date
- Suspending production
- Segregating obsolete and defective goods
- Establishing control over the counting process
- Achieving proper cutoff of sales and purchases
- Arranging for the services of specialists
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