审计学：一种整合方法_第12版_英文版Chapter16
审计学：一种整合方法_第12版_英文版Chapter01-46页精选文档
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
1 - 10
Distinguish Between Auditing and Accounting
Accounting is the recording, classifying, and summarizing of economic events for the purpose of providing financial information used in decision making.
Auditing should be done by a competent, independent person.
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
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Information and Established Criteria
The competence of the individual performing the audit is of little value if he or she is biased in the accumulation and evaluation of evidence.
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
1 - 12
Economic Demand for Auditing
Information risk reflects the possibility that the information upon which the business risk decision was made was inaccurate.
审计学：一种整合方法-阿伦斯-英文版-第12版-课后答案-Chapter-7-Solutions-Manual
Chapter 7Audit EvidenceReview Questions7-1In both a legal case and in an audit of financial statements, evidence is used by an unbiased person to draw conclusions. In addition, the consequences of an incorrect decision in both situations can be equally undesirable. For example, if a guilty person is set free, society may be in danger if the person repeats his or her illegal act. Similarly, if investors rely on materially misstated financial statements, they could lose significant amounts of money. Finally, the guilt of a defendant in a legal case must be proven beyond a reasonable doubt. This is similar to the concept of sufficient appropriate evidence in an audit situation. As with a judge or jury, an auditor cannot be completely convinced that his or her opinion is correct, but rather must obtain a high level of assurance.The nature of evidence in a legal case and in an audit of financial statements differs because a legal case relies heavily on testimony by witnesses and other parties involved. While inquiry is a form of evidence used by auditors, other more reliable types of evidence such as confirmation with third parties, physical examination, and documentation are also used extensively. A legal case also differs from an audit because of the nature of the conclusions made. In a legal case, a judge or jury decides the guilt or innocence of the defendant. In an audit, the auditor issues one of several audit opinions after evaluating the evidence.7-2The four major audit evidence decisions that must be made on every audit are:1.Which audit procedures to use.2.What sample size to select for a given procedure.3.Which items to select from the population.4.When to perform the procedure.7-3An audit procedure is the detailed instruction for the collection of a type of audit evidence that is to be obtained. Because audit procedures are the instructions to be followed in accumulating evidence, they must be worded carefully to make sure the instructions are clear.7-4An audit program for accounts receivable is a list of auditprocedures that will be used to audit accounts receivable for a given client. The audit procedures, sample size, items to select, and timing should be included in the audit program.7-5The auditor must obtain sufficient appropriate evidence by performing audit procedures to afford a reasonable basis for an opinion regarding the financial statements under audit. There are three major phrases of the standard.7-5(continued)7-6There are two primary reasons why the auditor can only be persuaded with a reasonable level of assurance, rather than be convinced that the financial statements are correct:1.The cost of accumulating evidence. It would be extremelycostly for the auditor to gather enough evidence to becompletely convinced.2.Evidence is normally not sufficiently reliable to enable theauditor to be completely convinced. For example,confirmations from customers may come back with erroneousinformation, which is the fault of the customer rather thanthe client.7-7The two determinants of the persuasiveness of evidence are appropriateness and sufficiency. Appropriateness refers to the relevance and reliability of evidence, or the degree to which evidence can be considered believable or worthy of trust. Appropriateness relates to the audit procedures selected, including the timing of when those procedures are performed. Sufficiency refers to the quantity of evidence and it is related to sample size and items to select.7-8Following are six characteristics that determine reliability and an example of each.7-97-9 (continued)7-10The four characteristics of the definition of a confirmation are:1.Receipt2.Written or oral response3.From independent third party4.Requested by the auditorA confirmation is prepared specifically for the auditor and comes from an external source. External documentation is in the hands of the client at the time of the audit and was prepared for the client's use in the day-to-day operation of the business.7-11Internal documentation is prepared and used within the client's organization without ever going to an outside party, such as a customer or vendor.Examples:check request formreceiving reportpayroll time cardadjusting journal entryExternal documentation either originated with an outside party or was an internal document that went to an outside party and is now either in the hands of the client or is readily accessible.Examples:vendor's invoicecancelled checkcancelled notevalidated deposit slip7-12Analytical procedures are useful for indicating account balances that may be distorted by unusual or significant transactions and that should be intensively investigated. They are also useful in reviewing accounts or transactions for reasonableness to corroborate tentative conclusions reached on the basis of other evidence.7-13The most important reasons for performing analytical procedures are the following:1.Understanding the client's industry and business2.Assessment of the entity's ability to continue as a goingconcern3.Indication of the presence of possible misstatements in thefinancial statements4.Reduction of detailed audit tests7-14The decrease of the current ratio indicates a liquidity problem for Harper Company since the ratio has dropped to a level close to the requirements of the bond indenture. Special care should be exercised by the auditor to determine that the 2.05 ratio is proper since management would be motivated to hide any lower ratio. The auditor should expand procedures to test all current assets for proper cutoff and possible overstatement and to test all current liabilities for proper cutoff and possible understatement.7-15Attention directing analytical procedures occur when significant, unexpected differences are found between current year's unaudited financial data and other data used in comparisons. If an unusual difference is large, the auditor must determine the reason for it, and satisfy himself or herself that the cause is a valid economic event and not an error or misstatement due to fraud.When an analytical procedure reveals no unusual fluctuations, the implication is minimized. In that case, the analytical procedure constitutes substantive evidence in support of the fair statement of the related account balances, and it is possible to perform fewer detailed substantive tests in connection with those accounts.Frequently, the same analytical procedures can be used for attention directing and for reducing substantive tests, depending on the outcome of the tests. Simple procedures such as comparing the current year account balance to the prior year account balance is more attention directing (and provides less assurance) than more complex analytical procedures; i.e., those which rely on regression analysis. More sophisticated analytical procedures help the auditor examine relationships between several information variables simultaneously. The nature of these tests may provide greater assurance than simpleprocedures.7-16The statement is correct. Except for certain accounts with small dollar balances, analytical procedures are essential to help the auditor identify trends in a client's business and to see the relationship between the client's performance and industry averages. However, the auditor is responsible for gathering sufficient appropriate evidence in addition to the evidence obtained as a result of the analytical procedures.7-17The purposes of audit documentation are as follows:1.To provide a basis for planning the audit. The auditor mayuse reference information from the previous year in order toplan this year's audit, such as the evaluation of internalcontrol, the time budget, etc.2.To provide a record of the evidence accumulated and theresults of the tests. This is the primary means ofdocumenting that an adequate audit was performed.3.To provide data for deciding the proper type of audit report.Data are used in determining the scope of the audit and thefairness with which the financial statements are stated.4.To provide a basis for review by supervisors and partners.These individuals use the audit documentation to evaluatewhether sufficient appropriate evidence was accumulated tojustify the audit report.Audit documentation are used for several purposes, both during the audit and after the audit is completed. One of the uses is the review by more experienced personnel. A second is for planning the subsequent year audit. A third is to demonstrate that the auditor has accumulated sufficient appropriate evidence if there is a need to defend the audit at a later date. For these uses, it is important that the audit documentation provide sufficient information so that the person reviewing an audit schedule knows the name of the client, contents of the audit schedule, period covered, who prepared the audit schedule, when it was prepared, and how it ties into the rest of the audit files with an index code.7-18The two criteria used by auditors of public companies when determining whether memos, correspondence, and other documents must be maintained in the audit files are as follows:1.The materials are created, sent, or received in connectionwith the audit or review.2.The materials contain conclusions, opinions, analyses, orfinancial data related to the audit or review.7-19 The Sarbanes-Oxley Act of 2002 requires auditors of public companies to prepare and maintain audit schedules and other information related to any audit report in sufficient detail to support the auditor’s conclusions, for a period of not less than 7 years.7-20Audit schedules should include the following:Name of the client Enables the auditor to identify the appropriate file to include the audit schedule in if it is removed from the files.Period covered Enables the auditor to identify the appropriate year to which an audit schedule for a client belongs if it is removed from the files.7-20 (continued)Description of the contents A list of the contents enables the reviewer to determine whether all important parts of the audit schedule have been included. The contents description is also used as a means of identifying audit files in the same manner that a table of contents is used.Initials of the preparer Indicates who prepared the audit schedule in case there are questions by the reviewer or someone who wants information from the files at a later date. It also clearly identifies who is responsible for preparing the audit documentation if the audit must be defended.Date of preparation Helps the reviewer to determine the sequence of the preparation of the audit schedules. It is also useful for the subsequent year in planning the sequence of preparing audit schedules.Indexing Helps in organizing and filing audit schedules. Indexing also facilitates in searching between related portions of the audit documentation.7-21The permanent file contains data of an historical and continuing nature pertinent to the current audit. Examples of items included in the file are:1.Articles of incorporation2.Bylaws, bond indentures, and contracts3.Analysis of accounts that have continuing importance to theauditorrmation related to the understanding of internal control:a.flowchartsb.internal control questionnaires5.Results of previous years' analytical procedures, such asvarious ratios and percentages compiled by the auditorsBy separating this information from the current year's audit files, it becomes easily accessible for the following year's auditors to obtain permanent file data.7-22The purpose of an analysis is to show the activity in a general ledger account during the entire period under audit, tying together the beginning and ending balances. The trial balance includes the detailed make-up of an ending balance. It differs from an analysis in that itincludes only those items comprising the end of the period balance. A test of reasonableness schedule contains information that enables the auditor to evaluate whether a certain account balance appears to be misstated. One example of a test of reasonableness schedule is a schedule that compares current year expenses to prior years' amounts. This type of schedule is intended to show which accounts need investigation due to significant variances.7-23Unanswered questions and exceptions may indicate the potential for significant errors or fraud in the financial statements. These should be investigated and resolved to make sure that financial statements are fairly presented.7-23 (continued)The audit files can also be subpoenaed by courts as legal evidence. Unanswered questions and exceptions may indicate lack of due care by the auditor.7-24Tick marks are symbols adjacent to information in audit schedules for the purpose of indicating the work performed by the auditor. An explanation of the tick mark must be included at the bottom of the audit schedule to indicate what was done and who did it.7-25Audit files are owned by the auditor. They can be used by the client if the auditor wants to release them after a careful consideration of whether there might be confidential information in them. The audit files can be subpoenaed by a court and thereby become the property of the court. They can be released to another CPA firm without the client's permission if they are being reviewed as a part of a voluntary peer review program under AICPA, state CPA society, or state Board of Accountancy authorization. The audit files can be sold or released to other users if the auditor obtains permission from the client.7-26It is a violation unless the CPA obtains permission from each client before the audit files for that client are released.7-27 When evidence can be examined only in machine-readable form, auditors use computers to read and examine evidence. There are commercial audit software programs designed specifically for use by auditors, such as ACL Software and Interactive Data Extraction and Analysis (IDEA). Spreadsheet software packages can also be used by auditors to perform audit tests on data that is available only in machine-readable form.7-28 The purposes of audit documentation software are to convert traditional paper-based documentation into electronic files and to organize the audit documentation. The benefits of audit documentation software, such as Automated Client Engagement (ACE), are as follows:The auditor can more efficiently prepare a trial balance, lead schedules, supporting audit documentation, financialstatements, and ratio analysis using the computer ratherthan by hand.The effects of adjusting journal entries are automatically carried through to the trial balance and financialstatements, making last-minute adjustments easier to make.Tick marks and review notes can be entered directly into computerized files.Data can be imported and exported to other applications. For example, a client’s general ledger can be downloaded into ACE and tax information can be downloaded into a commercial tax preparation package after the audit is completed.** Bills of lading are ordinarily signed by the freight company.That signature will be included on the top of the bill oflading, therefore, it is an external document.Multiple Choice Questions From CPA Examinations7-29 a. (2) b. (1) c. (4) d. (1)7-30 a. (3) b. (3) c. (4) d. (4)Discussion Questions And Problems7-31 a.1.External 7. Internal 13. Internal2.Internal 8. Internal 14. External3.External 9. External 15. Internal4.External 10. Internal* 16. External5.Internal* 11. External 17. External6.Internal 12. External** 18. External* Even though these may be signed or initialed by employees, they are still internal documents.b.External evidence is considered more reliable than internalevidence because external evidence has been in the hands ofboth the client and another party, implying agreement aboutthe information and the conditions stated on the document.7-32 1. (5) inquiry of client2.(8) observation3.(1) physical examination4.(2) confirmation5.(6) recalculation6.(2) confirmation7.(3) documentation8.(4) analytical procedures9.(5) inquiry of client10.(7) reperformance11.(8) observation12.(1) physical examination13.(4) analytical procedures14.(3) documentation15.(5) inquiry of client16.(4) analytical procedures17.(3) documentation18.(6) recalculation19.(1) physical examination20.(2) confirmation7-33Examples of audit evidence the auditor can use to support each of the functions are:a.Examine invoice from vendorDirect confirmation with vendorb.Physical examinationDirect confirmation with custodianc.Direct confirmation with customerExamine cash receipts journal and bank deposits forsubsequent cash receiptsd.Examine title for ownership of assetExamine invoice from vendore.Direct confirmation with vendorExamine client's copy of vendor's statementf.Physical examinationExamine sales invoice of subsequent sale of goods showingmarked down sale priceg.Count petty cashDirect confirmation with custodian7-34 a. Confirmations are normally more reliable evidence than inquiries of the client because of the independence of theoutside party confirming the information.b.Confirmation of bank balances is considered highly reliablewhereas confirmation of a department store charge account isoften not considered reliable. Banks are accustomed toconfirmations from auditors and normally maintain excellentaccounting records, whereas most customers of departmentstores have neither characteristic.c.If an auditor is not qualified to distinguish betweenvaluable inventory (e.g., diamonds) and worthless inventory(e.g., glass), the physical examination of inventory wouldnot be considered to be reliable evidence.d.Recalculation tests are highly reliable because the auditoris able to gain 100% assurance of the accuracy, but thetests only verify whether the recorded amounts areaccurately totaled. These tests do not uncover omissions orfictitious amounts.e.Relatively reliable documentation examples include: vendorstatements, bank statements, and signed lease agreements.Relatively unreliable documentation examples may be: copiesof customer invoices, internal memoranda and othercommunications, and a listing of fixed asset additions.The difference between reliable and unreliable documentation examples above is whether they originate fromoutside or inside the client's organization. Externalinformation is considered more reliable than internal documentation.7-34 (continued)f.1.Confirmation of accounts receivable - Corporationaccustomed to confirmations compared to a member ofthe general public.2.Examination of the corporate minutes - Experiencedpartner compared to a new assistant.3.Physical observation of inventory - Auditorknowledgeable in the client's inventory compared toone who is not.4.Attorney's letter - General counsel compared to anattorney involved only with patents.g. Analytical procedures are evidence of the likelihood ofmisstatements in the financial statements, but they arerarely sufficient by themselves to conclude that thestatements are misstated. Other supportive evidence isneeded to determine whether apparent misstatements areactually material.7-357-35 (continued)7-367-37 a. The six factors determining the reliability of evidence are:1.Independence of provider2.Effectiveness of client's internal controls3.Auditor's direct knowledge4.Qualifications of individuals providing theinformation5.Degree of objectivity6.Timelinessb. andc.7-387-38 (continued)7-39 a. The purpose of audit documentation is to aid the auditor in providing reasonable assurance that an adequate audit wasconducted in accordance with auditing standards.Specifically, the audit documentation provides:1. a basis for planning the audit2. a record of the evidence accumulated and results oftests3.data for deciding the proper audit report4. a basis for review by supervisors and partnersb.Audit files are the CPA's records of the procedures followed,tests performed, and conclusions reached during the audit.Audit files may include audit programs, analyses, memoranda,letters of confirmation and representation, abstracts ofcompany documents, and schedules or commentaries prepared orobtained by the auditor.c.The factors that affect the CPA's judgment of the type andcontent of the audit files for an engagement include:1.The nature of the auditor's report2.The nature of the client's business3.The nature of the financial statements, schedules, orother information upon which the CPA is reporting andthe materiality of the items included therein4.The nature and condition of the client's records andinternal controls5.The needs for supervision and review of work performedby assistants7-40In general, the audit schedule is not set up in a logical manner to show what the auditor wants to accomplish. The primary objective of the audit schedule is to verify the ending balance in notes receivable and interest receivable. A secondary objective is to account for allinterest income, cash received and cash disbursed for new notes, collateral as security, and other information about the notes for disclosure purposes.Specific deficiencies of the audit schedule presented in the question are:7-40 (continued)c.Spreadsheet SolutionThe purpose of using an Excel spreadsheet in this problem is to give the student some experience in preparing a simple audit schedule using an Excel spreadsheet. It should be explained to students that this type of audit schedule may or may not be prepared in actual practice, and that often templates are used to prepare more time-consuming audit schedules. Also, whether or not tick marks are computerized is a matter to be decided. The advantage is that the completed audit work can then be stored and reviewed electronically, a direction many firms are going. On the other hand, it may be more efficient to indicate audit work manually as it is performed, and a contrast in the color of the tick marks through use of a colored pencil may be desirable.The following solution was prepared with Excel (Filename P740.xls). The formulas used are self-evident, so no listing is provided, although it is available on the Companion Website and on the Instructor’s Resource CD- ROM, which is available upon request. Two items deserve comment:1.An advantage of using a spreadsheet program for thesetypes of analyses is that footing and crossfooting aredone automatically.2.When auditor tick marks are done by computer, aproblem arises as to how to place them on theworksheet. One could use narrow columns insertedbetween the scheduled client data, or, as done here,the tick marks are placed in blank rows beneath therelated data.7-40 (continued)-可编辑修改-VANDERVOORT COMPANYSchedule N-1 DateA/C #110 - NOTES RECEIVABLE Prepared by JD 01/21/08 12/31/07Approved by PP 02/15/08Account #110 - Notes Receivable InterestDate InterestMade/ Rate/ Face Value ofBalance Balance Receivable Receivable Maker Due Date Paid toAmount Security12/31/06 Additions Payments 12/31/07 12/31/06 Earned Received 12/31/07Apex Co. c *6/15/06 / 5% / 5000 None4000 0 1000 3000104 175 0 279 06/15/08 None pd.tp r tp < Ajax, Inc. c *11/21/06 / 5% / 3591 None3591 0 3591 0 0 102 102 0 Demand 12/31/07tp r tp < r J.J. Co. c *11/1/06 / 5% / 13180 2400012780 0 2400 10380 24 577 601 0 04/01/12 12/31/07 tp r tp < r ($200/Mo.)P.Smith c *7/26/07 / 5% / 25000 500000 250005000 200000 468 200 268 08/01/09 09/30/07 r r < r ($1000/Mo.)Martin-Peterson c *5/12/06 / 5% / 2100 None2100 0 2100 0 0 105 105 0 Demand 12/31/07tp r tp < r Tent Co. c *9/3/07 / 6% / 12000 100000 12000 1600 10400 0 162 108 54 02/01/10 11/30/07 r r < r ($400/Mo.) 2247137000156914378012815891116601f f f f, cf f f f f, cf Tpwtbtb opwtbLegend of Auditor's Tick Marks f Footed cf Crossfooted7-40 (continued)7-19tp Traced to prior year audit fileswtb Traced total to working trial balanceop Traced total to operations audit schedule - OP6* Examined note for payee, made and due dates,interest rate, face amount, and value ofsecurity. No exceptions noted.c Received confirmation, including date interest paid to,interest rate, interest paid during 2007, notebalance, and security. No exceptions noted.r Traced to cash receipts records< Recomputed for the year-可编辑修改-Cases7-41 The following are deficiencies in the sufficiency and appropriateness of the evidence in the audit of accounts payable for Grande Stores:McClure Advertising Credits–An insufficient number of confirmations (four) were sent. The use of alternative procedures is probably acceptable. However, one credit was confirmed by telephone, rather than by written confirmation. Although the differences found were immaterial, the auditors should have determined the reason for the differences, and any errors should have been projected to the population.Twenty additional credits were selected for testing. Whether this is a sufficient number is a matter of judgment, and depends on several factors. With a fairly small sample, it is critical that the items selected for testing adequately represent the population. The testing relied on internal documentation, which is insufficient to support the credits. The placing of the ad is insufficient evidence without supporting evidence from the vendor supporting the reduction in accounts payable.Springbrook Credits –These credits were confirmed by telephone, and were not supported by a written confirmation. The staff auditor was suspicious of the client’s unwillingness to allow written confirmation of the amounts, as well as the client’s changing explanation of the nature of the credits, but did not perform additional testing to resolve any doubts about the validity of the credits.Ridolfi Credits– The auditor obtained an oral confirmation that these credits were not valid. The client indicated that the auditor's information was incorrect, but would not allow the auditor to obtain written confirmation for these credits. In addition, the credit memos had been altered, which should have further indicated to the auditor that the credits were not valid.Accounts Payable Accrual–The auditors sent 50 accounts payable confirmations. Whether this is a sufficient number of confirmations is a matter of auditor judgment. However, the adequacy of the confirmations as evidence is significantly undermined by the knowledge that the client told suppliers how to respond. As a result, the auditor should have verified the confirmed balances using alternative procedures. There is no discussion of the performance of alternative procedures for nonresponses, or the resolution of the six responses that were not reconciled to Grande’s records.The auditors agreed to an adjustment of $260,000 when their cutoff tests indicated a potential liability of $500,000. It would be appropriate for the auditors to agree to a lower amount only if additional testing supported a lower accrued liability.7-42The audit schedule contains the following deficiencies:1.There is no indication of follow-up on the identified errorin the accrued interest payable computation.2.There is no indication whether the confirmation exceptionwas resolved.。
审计学：一种整合方法_第12版_英文版Chapter01
1 - 12
Economic Demand for Auditing
Information risk reflects the possibility that the information upon which the business risk decision was made was inaccurate.
1 - 11
Learning Objective 3
Explain the importance of auditing in reducing information risk.
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
1-5
Accumulating Evidence and Evaluating Evidence
Evidence is any information used by the auditor to determine whether the information being audited is stated in accordance with the established criteria.
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
1 - 16
Learning Objective 5
Describe assurance services and distinguish audit services from other assurance and nonassurance services provided by CPAs.
审计学：一种整合方法_第12版_英文版Cha(1)
Accumulating Evidence and Evaluating Evidence
Evidence is any information used by the auditor to determine whether the information being audited is stated in accordance with the established criteria.
Determines correspondence
Report on results
Report on tax deficiencies
Established criteria
Internal Revenue Code and all
interpretations
Learning Objective 2
Auditing is determining whether recorded information properly reflects the economic events that occurred during the accounting period.
Learning Objective 3
The final stage in the auditing process is preparing the Audit Report, which is the communication of the auditor’s findings to users.
Audit of a Tax Return Example
Learning Objective 1
Describe auditing.
Nature of Auditing
Chapter16 - final
CHAPTER 16 Multiple-Choice Questions1. easy Which of the following is not a balance-related audit objective evaluated in the audit of accounts receivable?a a. Timingb. Realizable valuec. Completenessd. Accuracy2. The two primary classes of transactions in the sales and collection cycle are:easy a. sales and sales discounts.b b. sales and cash receipts.c. sales and sales returns.d. sales and accounts receivable.3. The appropriate evidence to be obtained from tests of details must be decided on a(n): easy a. efficiency basis.c b. effectiveness basis.c. audit objectives basis.d. none of the above.4. easy Which of the following is not a balance-related audit objective evaluated in the audit of accounts receivable?d a. Accuracyb. Completenessc. Rightsd. Each of the above is a balance-related audit objective5. easy Tests of which balance-related audit objective are normally performed first in an audit of the sales and collection?d a. Accuracyb. Completenessc. Rightsd. Detail tie-in6. easy For most audits, inherent risk for accounts receivable is moderate or low except for which balance-related audit objectives?d a. Timing and realizable value.b. Completeness and existence.c. Existence and accuracy.d. Realizable value and cutoff.7. easy Which of the following types of receivables would not deserve the special attention of the auditor?d a. Accounts receivables with credit balances.b. Accounts that have been outstanding for a long time.c. Receivables from affiliated companies.d. Each of the above would receive special attention.8. easy b A listing of the balances in the accounts receivable master file at the balance sheet date, by total balance outstanding and by the amount of time the component parts have been outstanding, is the:a. customer list.b. aged trial balance.c. accounts receivable ledger.d. schedule of accounts receivable.9. easy Testing the information on the aged trial balance for detail tie-in is a necessary audit procedure, which would normally include:d a. test footing the total column and the columns depicting the aging.b. comparing the total of the trial balance with the general ledger accounts receivableaccount.c. none of the above.d. all of the above.10. easy Auditors are often concerned with three aspects of internal controls related to the sales and collection cycle. Which of the following is not one of those controls?c a. Controls that detect or prevent embezzlements.b. Controls over cutoff.c. Controls over acquisitions.d. Controls related to the allowance for doubtful accounts.11. Cutoff misstatements occur when:easy d a. the auditor mistakenly asks the bank for the end-of-year bank statement instead of thestatement which would include the two succeeding weeks.b. subsequent period transactions are recorded in the current period.c. current period transactions are recorded in the subsequent period.d. both b and c above, but not a.12. Cutoff misstatements occur:easy a. either by error or fraud.a b. by error only.c. by fraud only.d. randomly without causes related to errors or fraud.13. Generally accepted accounting principles require that material sales returns and allowances be: easy a. recorded in the period when the merchandise is returned.c b. recorded in the period when the credit memo is issued.c. matched with related sales.d. recorded as a debit to the sales account.14. easy Communication addressed to the debtor requesting him or her to confirm whether the balance as stated on the communication is correct or incorrect is a:d a. representation letter.b. negative confirmation.c. bank confirmation.d. positive confirmation.15. A type of positive confirmation known as a blank confirmation:easy a. requests the recipient to fill in the amount of the balance.a b. is considered less reliable than the regular positive confirmation.c. generates as high a response rate as the regular positive confirmation form.d. has all of the attributes of a, b, and c above.16. medium For sales, the occurrence transaction-related audit objective affects the ______ balance-related audit objective.a a. existenceb. completenessc. rightsd. detail tie-in17. medium For cash receipts, the occurrence transaction-related audit objective affects the ______ balance-related audit objective.b a. existenceb. completenessc. rightsd. detail tie-in18. medium Which of the following is likely to be performed first when doing tests of details for accounts receivable?b a. Recorded accounts receivable exist.b. Accounts receivable in the aged trial balance agree with related master file amounts, andthe total is correctly added and agrees with the general ledger.c. Accounts receivable are owned.d. Existing accounts receivable are included.19. medium Analytical procedures are substantive tests and, if the results of the analytical procedures are favorable, the auditor will:a a. reduce the extent of tests of details of balances.b. reduce the extent of tests of controls.c. reduce the tests of transactions.d. reduce all of the other tests.20. The most important test of details of accounts receivable is the: medium a. detail tie-in of the records.c b. analysis of the allowance for doubtful accounts.c. confirmation of accounts receivable.d. combination of the above.21. medium The extent of the testing of detail tie-in of an aged trial balance depends on all but which of the following?d a. The number of accounts involved.b. The degree to which the master file has been tested as a part of tests of controls tests oftransactions.c. The extent to which the schedule has been verified by an independent person before it isgiven to the auditor.d. The extent of testing depends on each of the above.22. Tests of details of balances are directed to:medium a. balance sheet accounts for all cycles.a b. income statement accounts for all cycles.c. balance sheet accounts for some cycles and income statement accounts for other cycles.d. all general ledger accounts for all cycles.23. The most important test of details of balances for accounts receivable is:medium a. confirmations.a b. recalculation of the aged receivables and uncollectible accounts.c. tracing credit memos for returned merchandise to receiving room reports.d. tracing from shipping documents to journals to the accounts receivable ledger.24. Most tests of accounts receivable and the allowance for uncollectible accounts are based on the: medium a. general ledger balance of each account.d b. results of analytical procedures.c. results of confirmations.d. aged trial balance.25. medium The most important test of details of balances to determine the existence of recorded accounts receivable is:d a. tracing details of sales invoices to shipping documents.b. tracing the credits in accounts receivable to bank deposits.c. tracing sales returns entries to credit memos issued and receiving room reports.d. the confirmation of customers’ balances.26. medium When should auditors not perform alternative procedures in testing the accounts receivable balance?c a. When customers do not return confirmation requests.b. When confirmations are deemed to be ineffective as an audit procedure.c. When confirmations are too costly to use.d. Alternative procedures should never be used.27. medium Because of its central role in auditing of accounts receivable, the ______________ is one of the first items tested.c a. accounts receivable master fileb. customer filec. aged trial balanced. sales register28. If accounts receivable accounts with credit balances are significant, they should be: medium a. written off.c b. moved to the debit side.c. reclassified as accounts payable.d. corrected by making adjusting entries.29. Most tests of accounts receivable are based on what schedule, file, or listing? medium a. Sales master file.b b. Aged accounts receivable trial balance.c. Accounts receivable master file.d. None of the above.30. medium c An auditor discovers that the client records sales returns and allowances in the accounting period in which they occur, under the assumption of approximately equal offsetting errors at the beginning and end of each period.a. This is acceptable.b. This is not acceptable.c. This is acceptable as long as the amounts are not significant.d. This is not acceptable as long as the amounts are not significant.31. medium If the client’s internal control for recording sales returns and allowan ces is evaluated as ineffective:a a. a larger sample is needed to verify cutoff.b. sampling is not appropriate.c. all sales returns must be traced to supporting documentation.d. all sales returns must be confirmed with the customer.32. medium b A customer mails and records a check to a client for payment of an unpaid account on December30. The client receives and records the amount on January 2. The records of the two organizations will be different on December 31.a. This is a cutoff misstatement.b. This is a timing difference.c. Both a and b.d. Neither a nor b.33. medium Which of the following audit procedures would not likely detect a client’s decision to pledge or factor accounts receivable?c a. A review of the minutes of the board of directors’ meetings.b. Discussions with the client.c. Confirmation of receivables.d. Examination of correspondence files.34. When do most companies record sales returns and allowances?medium a. During the month in which the sale occurs.b b. During the accounting period in which the return occurs.c. Whenever the customer contacts the company regarding the credit.d. Any of the above is correct.35. Cutoff misstatements can occur for:medium a. sales.d b. sales returns and allowances.c. cash collections.d. any of the above.36. The most important aspect of evaluating the client’s method of obtaining a reliable cutoff is to: medium a. perform extensive detailed testing of cutoff.b b. evaluate the client’s control procedures around cutoff.c. confirm a sample of transactions near period end with customers.d. perform any of the above.37. A positive confirmation is more reliable evidence than a negative confirmation because: medium a. fewer confirmations can be sent out.d b. the auditor has a document which can be used in court.c. the debtor’s lack of response indicat es agreement with the stated balance.d. follow-up procedures can be performed if a response is not received from the debtor.38. The advantage of using the negative form of confirmations is that:medium a a. larger sample sizes can be used without increasing the costs above what would have beenrequired for positive confirmations.b. customer’s silence proves that the balance is correct.c. follow-up procedures are scheduled automatically.d. it is appropriate in all circumstances.39. medium Which of the following procedures do most auditors perform when auditing the allowance for doubtful accounts?d a. Examine credit files for select customers.b. Inquire of the client’s credit manager.c. Review the client’s correspondence files related to select customers.d. Auditors generally perform all of the above procedures.40. medium a When positive confirmations are used, auditing standards require follow-up procedures for confirmations not returned by the customer. In such a situation, which of the following would not be classified as an alternative procedure?a. Send a second confirmation request.b. Examine subsequent cash receipts to determine if the receivable has been paid.c. Examine shipping documents to verify that the merchandise was shipped.d. Examine customer’s purchase order and the duplicate sales invoice to determine that themerchandise was ordered.41. medium Generally accepted accounting principles require that sales returns and allowances be matched with related sales:c a. if practical.b. if required by industry practice.c. if the amounts are material.d. any of the above.42. For which of the following accounts is cutoff least important? medium a. Salesc b. Sales returns and allowancesc. Cash collectionsd. Cutoff is equally important for each of the above.43. medium What are the possible disadvantages of evaluating the allowance for doubtful accounts by reviewing individual non-current balances?c a. Current accounts receivable may be ignored.b. It is difficult to compare results of the current and prior years if such an unstructuredapproach is used.c. Both a and b.d. None of the above.44. Which of the following most likely would be detected by a review of a c lient’s sales cutoff? medium a. Excessive sales discounts.b b. Unrecorded sales for the year.c. Unauthorized goods returned for credit.d. Lapping of year-end accounts receivable.45. The positive (as opposed to the negative) form of receivables confirmation is preferred when: medium a. internal control surrounding accounts receivable is considered to be effective.b b. there is reason to believe that a substantial number of accounts may be in dispute.c. a large number of small balances are involved.d. there is reason to believe a significant portion of the requests will be made.46. medium An auditor should perform alternative procedures to substantiate the existence of accounts receivable when:a a. no reply to a positive confirmation request is received.b. no reply to a negative confirmation request is received.c. collectibility of the receivables is in doubt.d. pledging of the receivables is probable.47. How might the auditor determine whether a client has limited rights to accounts receivable? medium a. Review minutes from board of directors meetings.d b. Inquiries of the client.c. Review bank confirmations.d. Any of the above may be used for this purpose.48. Confirmation of accounts receivable balances normally provides evidence concerning the: medium a. valuation of the balances.c b. rights of the balances.c. existence of the balances.d. completeness of the balances.49. If the auditor decides not to confirm accounts receivable, the auditor should:medium a. always use alternative procedures to audit the accounts receivable.c b. do no more audit work.c. document the reasons for such a decision in the audit files.d. follow b and c, but not a.50. The understatement of sales and accounts receivable is best uncovered by:challenging a. confirming receivables.c b. reviewing the aged trial balance.c. test of transactions for shipments made but not recorded.d. reconciling the accounts receivable general ledger account with the schedule of accountsreceivable.51. challenging a You are reviewing sales to discover cutoff problems. If the client’s policy is to record sales when title to the merchandise passes to the buyer, then the books and records would contain errors if the December 31 entries were for sales recorded:a. before the merchandise was shipped.b. at the time the merchandise was shipped.c. several days subsequent to shipment.d. at a time after the point at which title passed.52. It is easy to test for a cash receipts cutoff error by:challenging a. reconciling the bank statement.d b. performing a four-column proof-of-cash.c. observing the counting of cash at the balance sheet date.d. tracing recorded cash receipts to bank deposits on the bank statement of a different period.53. The most reliable evidence from confirmations is obtained when they are sent:challenging a. as close to the balance sheet date as possible.a b. at various times throughout the year to different segments of the sample, so that the entiresample is representative of account balances scattered throughout the year.c. several months before the year-end, so the auditor will have adequate time to performalternate procedures if they are required.d. at various times throughout the year to the same group in the sample, so that the samplewill not have a time bias.54. challenging Which of the following is not an important consideration in determining the sample size of confirmations?a a. The types of confirmations being sent; that is, positive or negative.b. The results of related analytical procedures.c. Total annual credit sales.d. Each of the above is an important factor.55. challenging d An auditor learns that collections of accounts receivable during the first ten days of January were debited to cash and credited to accounts receivable as of December 31. The effect generally will be to:a. overstate the current ratio with no effect on working capital at December 31.b. overstate both working capital and the current ratio at December 31.c. overstate working capital with no effect on the current ratio at December 31.d. leave both working capital and the current ratio unchanged at December 31.56. challenging For effective internal control, employees maintaining the accounts receivable subsidiary ledger should not also approve:c a. employee overtime wages.b. credit granted to customers.c. write-offs of customer accounts.d. cash disbursements.57. challenging For most audits, a proper cash receipts cutoff is less important than the sales cutoff because the improper cutoff of cash:c a. is detected and correct when cash is separately audited.b. is unlikely to have a material impact on the balance sheet or the income statement.c. affects on the cash and accounts receivable balances on the balance sheet and does notaffect net income.d. rarely occurs given the control consciousness of most entities.Essay Questions58. easy Auditing standards require the confirmation of accounts receivable in normal circumstances. What are the three exceptions to this requirement?Answer:The three exceptions are:1. Accounts receivable are immaterial.2. The auditor considers confirmations ineffective evidence because response rates willlikely be inadequate or unreliable.3. The combined level of inherent risk and control risk is low and other substantiveevidence can be accumulated to provide sufficient evidence.59. easy Describe the differences between positive and negative confirmations. Which type is generally viewed as more reliable?Answer:A positive confirmation requests the recipient to respond regardless of whether the balanceas stated on the confirmation is correct or incorrect. In contrast, a negative confirmation requests the recipient to respond only if the balance as stated on the confirmation is incorrect. Positive confirmations are more reliable because the auditor can perform follow-up procedures if a response is not received from the customer.60. medium A threefold approach is typically followed when determining the reasonableness of cutoff. Briefly describe the threefold approach.Answer:First, auditors should decide on the appropriate cutoff criteria. Second, they must evaluate whether the client has established adequate procedures to ensure a reasonable cutoff.Finally, auditors must test whether a reasonable cutoff was obtained.61. medium Discuss the alternative procedures an auditor can perform to test the existence objective for accounts receivable when customers do not respond to confirmation requests.Answer:For any positive confirmation not returned, the auditor can examine the following to verify the existence of individual sales transactions making up the ending balance in accounts receivable:•Subsequent cash receipts—evidence of the receipt of cash after the confirmation date includes examining remittance advices and entries in the cash receipts records.•Duplicate sales invoices.•Shipping documents.•Correspondence between the customer and the client.62.mediumDescribe how the auditor tests the accuracy objective for accounts receivable.Answer:Confirmation of accounts selected from the trial balance is the most common test of detailsof balances for the accuracy of accounts receivable. When customers do not respond toconfirmation requests, auditors examine supporting documents in the same way asdescribed for the existence objective. Auditors perform tests of the debits and credits toindividual customers’ balances by examining supporting documentation for shipments andcash receipts.63.mediumDescribe how the auditor tests the classification objective for accounts receivable.Answer:Normally, auditors can evaluate the classification of accounts receivable relatively easily,by reviewing the aged trial balance for material receivables from affiliates, officers,directors, or other related parties. Auditors should verify that notes receivable or accountsthat should be classified as noncurrent assets are separated from regular accounts, andsignificant credit balances in accounts receivable are reclassified as accounts payable.64. medium Discuss the audit procedures performed when testing the detail tie-in objective for accounts receivable, and explain why this objective is ordinarily tested before any other objectives for accounts receivable.Answer:When testing the detail tie-in objective for accounts receivable, the total column and the columns depicting the aging on the aged trial balance are footed, and the total is compared to the general ledger. In addition, a sample of individual balances on the aged trial balance should be traced to supporting documents to verify the customer’s name, balance, and proper aging. These tests are ordinarily done before any other tests to assure the auditor that the population being tested agrees with the general ledger and accounts receivable master file.65. medium Assuming the client’s internal controls are adequate, describe how the auditor can ve rify proper cutoff of sales transactions.Answer:Assuming the client’s internal controls are adequate, the auditor can verify proper cutoff of sales transactions by obtaining the shipping document number for the last shipment made at the end of the period and comparing this number with current and subsequent period recorded sales.66.mediumDescribe how the auditor tests the rights objective for accounts receivable.Answer:The auditor can test the rights objective for accounts receivable through reviewing theclient’s minutes, discussions with the client, confirmation with banks, and the examinationof correspondence files to determine whether receivables may have been pledged ascollateral, assigned to someone else, factored, or sold.67. medium Discuss the advantages and disadvantages of using negative accounts receivable confirmations rather than positive confirmations.Answer:The primary advantage of negative confirmations is that they are less expensive than positive confirmations because there are no second requests and no follow-up of nonresponses. The primary disadvantage of negative confirmations is that they are less reliable than positive confirmations because a nonresponse must be regarded as a correct response, even though the debtor may have ignored the confirmation request.68. medium Briefly describe the circumstances in which it is acceptable to use negative confirmation requests.Answer:It is acceptable to use negative confirmation requests only when all of the following circumstances are present:•Accounts receivable is made up of a large number of small accounts.•Combined assessed control risk and inherent risk is low.•There is no reason to believe that the recipients of the confirmations are unlikely to give them consideration.69. medium Describe each of the following types of confirmations:•Positive confirmation•Blank confirmation form•Invoice confirmation•Negative confirmationAnswer:•Positive confirmations are communications addressed to a debtor requesting the recipient to confirm whether the balance as stated on the confirmation is correct orincorrect.•Blank confirmation forms do not state the amount, but requests the recipient to fill in the balance or furnish other information.•Invoice confirmations request a recipient to confirm an individual invoice rather than an entire balance.•Negative confirmations are addressed to debtor, but request responses only if the information is incorrect.70.challengingWhat are the major factors affecting sample size for confirming accounts receivable?Answer:The factors include:•tolerable misstatement,•inherent risk (e.g., relative size of accounts receivable and number of accounts),•control risk,•achieved detection risk form other substantive tests, and•the type of confirmation (e.g., negative normally requires a larger sample size).71. challenging When an auditor uses negative confirmations several factors must be considered. What are those factors?Answer:The auditor must carefully consider the following:•The effectiveness of the client’s internal controls•Results of substantive tests of transactions•The appropriateness of analytical procedures as evidence on the fairness of accounts receivable.•Whether a large majority of recipients will give careful consideration to the confirmation.Other Objective Answer Format Questions72.mediumMatch seven of the terms (a-k) with the definitions provided below (1-7):a. Accounts receivable balance-related audit objectivesb. Aged trial balancec. Alternative proceduresd. Blank confirmation forme. Cutoff misstatementsf. Evidence planning worksheetg. Negative confirmationh. Positive confirmationi. Realizable value of accounts receivablej. Timing difference in an account receivable confirmationk. Invoice confirmationc 1. The follow-up of a positive confirmation not returned by the debtor with the useof documentation evidence to determine whether the recorded receivable existsand is collectible.h 2. A letter, addressed to the debtor, requesting that the recipient indicate directly onthe letter whether the stated account balance is correct or incorrect and, ifincorrect, by what amount.e 3. Misstatements that take place as a result of current period transactions beingrecorded in a subsequent period, or subsequent period transactions beingrecorded in the current period.f 4. A form used to help the auditor decide whether planned detection risk for tests ofdetails of balances should be low, medium, or high for each balance-related auditobjective.g 5. A letter, addressed to the debtor, requesting a response only if the recipientdisagrees with the amount of the stated account balance.j 6. A reported difference in a confirmation from a debtor that is determined to be atiming difference between the client’s and debtor’s records and therefore not amisstatement.b 7. A listing of the balances in the accounts receivable master file at the balancesheet date broken down according to the amount of time that has passed betweenthe date of sale and the balance sheet date.73. easy a Tests of details of balances must be designed for each balance-related audit objective.a. Trueb. False74. easy a Favorable results from analytical procedures reduce the extent to which the auditor needs to test details of balances.a. Trueb. False。
审计学：一种整合方法_第12版_英文版Chapter18-32页PPT资料
18 - 5
Accounts in the Payroll and Personnel Cycle
In most systems the accrued wages and salaries account is used only at the end of an accounting period.
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
18 - 9
Timekeeping and Payroll Preparation
Time Card Job Time Ticket Payroll Transaction File Payroll Journal
Begins Ends
Hiring of personnel Payments
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
18 - 8
Personnel and Employment
Personnel records Deduction authorization form Rate authorization form
Accounts in the Payroll and Personnel Cycle
The overall objective in the audit of the payroll and personnel cycle is to evaluate whether the account balances affected by the cycle are fairly stated in accordance with generally accepted accounting principles.
审计学：一种整合方法阿伦斯英文版第12版课后问题详解Chapter18SolutionsManual
Chapter 18Audit of the Payroll andPersonnel CycleReview Questions18-1 General ledger accounts that are likely to be affected by the payroll and personnel cycle in most audits include the following:Cash Direct laborInventory Salary expenseConstruction in progress Commission expenseWages payable Payroll tax expensePayroll taxes withheldAccrued payroll taxes18-2In companies where payroll is a significant portion of inventory, as in manufacturing and construction companies, the improper account classification of payroll can significantly affect asset valuation for accounts such as work in process, finished goods, and construction in process. For example, if the salaries of administrative personnel are incorrectly charged to indirect manufacturing overhead, the overhead charged to inventory on the balance sheet can be overstated. Similarly, if the indirect labor cost of individual employees is charged to specific jobs or processes, the valuation of inventory is affected if labor is improperly classified. When some jobs are billed on a cost plus basis, revenue and the valuation of inventory are both affected by improperly classifying labor to jobs.18-3Five tests of controls that can be performed for the payroll and personnel cycle are:1. Examine time card for indication of approval to ensure thatpayroll payments are properly authorized. The purpose ofthis test is to determine that recorded payroll payments arefor work actually performed by existing employees(occurrence).2. Account for a sequence of payroll checks to ensure existingpayroll payments are recorded. The purpose of this test isto determine that existing payroll transactions are recorded(completeness).3. Examine time cards to ensure that recorded payroll paymentsare for work actually performed by existing employees. The purpose of this test is the same as in item 1 above.4. Compare postings to the chart of accounts to ensure thatpayroll transactions are properly classified.(Classification)5. Observe when recording takes place to ensure that payrolltransactions are recorded on a timely basis. (Timing)18-4The percentage of total audit time in the cycle devoted to performing tests of controls and substantive tests of transactions is usually far greater in the payroll and personnel cycle than for the sales and collection cycle because there is relatively little independent third party evidence, such as confirmation, to verify the related payroll accounts. In contrast, the accounts related to the sales and collection cycle can usually be verified for the most part by confirmations from customers. In addition, in the sales and collection cycle, verification of the realizability of receivables and sales cutoff tests are important and time- consuming tasks.18-5The auditor should be concerned with whether the human resources department is following the proper hiring and termination procedures. An obvious reason for this would be to ensure that there are adequate safeguards against hiring and retaining incompetent and untrustworthy people. The ramifications of hiring such people can range from simple inefficiency and waste to outright fraud or theft. More importantly, though, it is necessary for the auditor to assure himself or herself that the client is hiring and terminating according to operations standards and procedures. It is necessary to see if the internal controls are working as planned before they can be effectively evaluated. To say that the auditor doesn't care who is hired and who is fired is to suggest that he or she doesn't care if the internal controls work according to any standards. Failure to follow proper termination procedures could lead to fraudulent payments for work not performed.18-6To trace a random sample of prenumbered time cards to the related payroll checks in the payroll register and compare the hours worked to the hours paid is to test if those employees who worked are being paid for their time actually worked. Employees are likely to inform management if they are not paid, or underpaid. To trace a random sample of payroll checks from the payroll register and compare the hours worked to the hours paid is to test if the recorded payroll payments are for work actually performed by existing employees. This test, in effect, attempts to discover nonexistent employees or duplicate payments, if there are any. For this reason, the second procedure is typically more important to the audit of payroll.18-7In auditing payroll withholding and payroll tax expense, the emphasis should normally be on evaluating the adequacy of the payroll tax return preparation procedures rather than the payroll tax liability, because a major reason for misstatements in the liability account is incorrect preparation of the returns in the past. If the preparationprocedures are inadequate, and the amounts do not appear reasonable, then the auditor should expand his or her work and recompute the withholding and expense amounts to determine that the proper amount has been accrued. In addition, the auditor should consider the amount of penalties which may be assessed for inadequate withholdings and include these amounts in the accrual if they are significant.18-8Several analytical procedures for the payroll and personnel cycle and misstatements that might be indicated by significant fluctuations are as follows:18-9An auditor should perform audit tests primarily designed to uncover fraud in the payroll and personnel cycle when he or she has determined that internal controls are deficient (or the opportunity exists for management to override the internal controls) or when there are other reasons to suspect fraud. Audit procedures that are primarily for the detection of fraud in the payroll and personnel cycle include:1. Examine cancelled payroll checks for employee name,authorized signature, and proper endorsement (especially forsecond endorsements) to discover checks going to nonexistentemployees. The endorsement should be compared to signatureson W-4 forms.2. Trace selected transactions recorded in the payroll journalor listing to the human resources department files to determine whether the employees were actually employed during the period.3. Select several terminated employees from payroll records todetermine whether each former employee received his or her termination pay in accordance with company policy and to determine that the employee's pay was discontinued on the date of termination.18-9 (continued)4. Examine the subsequent payroll periods of terminatedemployees to ascertain that the employees are no longerbeing paid.5. Request a surprise payroll payoff to observe if anyunclaimed checks result, which will necessitate extensiveinvestigation.18-10 The Payroll Master File is maintained for each employee indicating the gross pay for each payment period, deductions from the gross pay, the net pay, the check number, and the date. The purpose of this record is to provide detailed information for federal and state income tax purposes, and to serve as the final record of what each employee was actually paid.The W-2 Form is issued to each employee at the end of each calendar year and indicates his or her gross pay, income taxes withheld, and FICA withheld for the year. In serving as a summary of the employee's earnings record, the W-2 form conveniently provides information necessary for the employee to fill out his or her income tax returns.A Payroll Tax Return is the form required by and submitted to the local, state and federal governments for the payment of withheld taxes and the employer's portion of FICA taxes and state and federal unemployment compensation taxes.18-11 Where the primary objective is to detect fraud, the auditor will examine the following supporting documents and records:1. Cancelled payroll checks for employee name, authorizedsignature and proper endorsement, watching specifically forunusual or recurring second endorsements.2. Payroll journal or listing, tracing transactions to thepersonnel files to determine whether the employees wereactually employed during the payroll period.3. Payroll journal or listing and individual payroll records,selecting terminated employees to determine whether eachterminated employee received his or her termination pay inaccordance with company policy and whether each employee waspaid in the subsequent payroll period.4. Payroll checks, observing each employee as he or she picksup and signs for his or her check.5. Time cards, testing them for reasonableness or observingwhether they are being punched by the proper employees.18-12 Types of authorizations in the payroll and personnel cycle are:1. Deduction authorization, without which the wrong amount (orno deduction) may be deducted from the employee's paycheck.2. Rate authorizations, without which the employee may begetting paid at the wrong rate.3. Time card authorization, without which the employee may begetting paid for the wrong quantity of hours worked.18-12(continued)4. Payroll check authorization, without which unauthorizedfunds may be paid out.5. Commission rate authorization, without which the salespeoplemight be improperly compensated for their sales efforts.6. Authorization to hire a new employee, without whichnonexistent or unqualified personnel may be added to thepayroll.18-13 It is common to verify total officers' compensation even when the tests of controls and substantive tests of transactions results in payroll are excellent because the salaries and bonuses of officers must be included in the SEC's 10-K Report and the federal income tax return and because management may be in a position to pay themselves more than the authorized amount, since the controls over the officers' payroll are typically weaker and therefore easier to override than those of the normal payroll.The usual audit procedure used to verify the officers' compensation is to obtain the authorized salary of each officer from the minutes of the board of directors and compare it to the related earnings record.18-14 An imprest payroll account is a separate payroll bank account in which a constant balance, either zero or small, is maintained. When a payroll is paid, the exact amount of the net payroll is transferred by check or electronic funds transfer from the general account to the imprest account. The purpose and advantage of an imprest payroll account is that it limits the company's exposure to payroll fraud by limiting the amount that may be misappropriated.18-15 Several audit procedures the auditor can use to determine whether recorded payroll transactions are recorded at the proper amounts are:1. Recompute hours worked from time cards.2. Compare pay rates with union contract, approval by the boardof directors, or other source.3. Recompute gross pay.4. Check withholdings by reference to tax tables andauthorization forms in personnel files.5. Recompute net pay.6. Compare cancelled check with payroll journal or listing foramount.18-16 Attributes sampling can be used in the payroll and personnel cycle in performing tests of controls and substantive tests of transactions with the following objectives:1. Time card hours agree with payroll computations.2. Overtime hours are approved.3. Foreman approves all time cards.4. Hourly rates agree with personnel files and union contracts.18-16 (continued)5. Gross pay calculation is verified.6. Exemptions taken agree with W-4.7. Income tax, other deductions, and net pay calculations areverified.8. Authorizations are available for voluntary withholdings andmiscellaneous deductions.9. Paycheck endorsement is same as signature on W-4 form.The frequency of control deviations or monetary errors must be estimated prior to performing the tests. This estimate together with the acceptable risk of assessing control risk too low (ARACR) and the tolerable exception rate will enable the auditor to determine the sample size required. Once the tests are performed on the sample, evaluation of the results will indicate whether the exception rate is lower than, equal to, or higher than that anticipated. The auditor must then use this judgment to decide the appropriate action to take.Multiple Choice Questions From CPA Examinations18-17 a. (2) b. (1) c. (3)18-18 a. (1) b. (4) c. (4) d. (4)Discussion Questions and Problems18-1918-2018-2118-2218-23 A flowchart of steps for each type of test is given below(requirements a, b, and c):18-24 a. Brendin's approach to determining why this year's payroll tax expense was so high suffers from two seriousdeficiencies: First, it lacks relevance, and second, it istoo narrowly focused. The approach lacks relevance in thathe is testing payroll withholding which is not the same aspayroll tax expense. Some payroll taxes are related towithholding such as FICA, but income tax withheld does notgive rise to an expense, and certain payroll taxes, such asunemployment compensation, are not withheld. The approach istoo narrowly focused in that the analytical test resultscould have resulted from a misstatement of the payrollitself; Brendin does not appear to be considering thispossibility.b. A more suitable approach for determining whether payroll taxwas properly stated in the current year would be to evaluatethe reasonableness of the total payroll, reconcile thepayroll to amounts shown on payroll tax reports, and checkcomputations as shown on those reports for reasonableness.18-25 The following audit procedures should be used to verify the payroll related accounts:1. Accrued payroll:a. Review the company's policy for computing the accrualand whether it is consistent with the prior year.b. Assess whether 60 percent is a reasonableapproximation of the portion of the subsequent payrollapplication to the current year.c. Test the subsequent payroll for cutoff and accuracy.d. Determine that the computation of the accrual iscorrect.2. Withheld payroll taxes:a. Compare the balance in the liability account with thepayroll journal or listing.b. Reconcile the amount to subsequent payroll tax reportsand cash disbursed.c. Review in light of the subsequent period's payroll.3. Accrued payroll taxes:a. Trace FICA withheld from payroll journal or listing topayroll tax reports.b. Review amounts on payroll tax reports forreasonableness.c. Reconcile accruals to payroll tax reports.d. Examine subsequent cash disbursed.18-26 a. The purpose of a surprise payroll payoff is to determine whether or not nonexistent personnel are included in thepayroll.b. Procedures other than a surprise payroll payoff that can beused to discover nonexistent employees are:1. Examine cancelled payroll checks for employee name,authorized signature, and proper endorsement that agreeswith the employee's signed W-4 form.18-26(continued)2. Select several terminated employees from payroll recordsto determine whether each former employee received his orher termination pay in accordance with company policy andwas not paid in subsequent payrolls.c. When the payroll payoff is taking place, the client shouldobserve these control procedures:1. All employees must prove identity.2. Unclaimed paychecks must be further investigated.Unclaimed paychecks might be accounted for byemployees who are sick or on vacation. After allpresent employees have received their checks, theremaining paychecks should be traced to the personnelfiles to determine if these employees were everemployed by the client. Thereafter, if practical, theremaining checks should be held until the employeescan be present with proper identification to claim thecheck.d. See c.2 above.18-2718-27 (continued)18-28 a. An audit program to verify sales commission expense is as follows:1. Select a sample of office copies of sales invoices.a. Check commissions rate to commissions rate file.b. Check computation of sales commissions.c. Examine invoices for internal verification byaccounts receivable clerk.d. Trace sales commission amounts to salescommission ledger.2. Foot the sales commission ledger for one or moremonths, and trace the total to the general ledger.3. Compare totals for periods in the sales commissionledger to period balances of sales commission expense.b. An audit program to verify accrued sales commissions is:1. Compare the accrual with that of the previous year.Investigate any significant change.2. Compare the amount of commissions paid to the salesmenon the fifteenth of the month following year-end tothe total accrued commissions at year-end. Obtain areconciliation and explanation for any reconcilingitems.3. Send confirmations to salesmen for the larger amountsof accrued commissions and a sample of the smalleramounts.Case18-29 a. Conventional forms and documents in a payroll system include the following:Personnel recordsDeduction authorization formsRate authorization formsTime cards and job time ticketsPayroll checksPayroll journal or listing and labor distributionEarnings recordW-2 formPayroll tax returnsIn using the computer service center, it appears that there is no loss in documentation in substance; however, theearnings record is not printed out each pay period, thus,the current version is usually in machine readable form.(This assumes that authorization forms exist although theyare not discussed in the case.) The fact that the earningsrecord is in magnetic form is not a problem, as long as theservice bureau has adequate backup and recovery controls.The above analysis reflects the fact that Leggert's internal controls in the payroll area are generally good.There is good segregation of duties between the Presidentand Clark, assuming both are trustworthy, honest people.Procedures, forms, records, and reports are comprehensiveand well-designed.The only potential deficiency in internal control is that errors in details could be made by the service bureauand not necessarily be caught. It is difficult to imagine that these would be material.18-29 (continued)b.c. Procedures in performance format:1. Make observations of the following activities by MaryClark:a) Control, collection and processing of time cards.b) Rechecking of hours on time cards.c) Processing and approval of payroll journal or listing.d) Posting of general ledger.2. Make observations of the following activities by thePresident:a) Maintenance of personnel files.b) Distribution of paychecks.c) Processing and approval of payroll journal or listing.d) Posting of general ledger.3. Make observations of the following general matters andactivities:a) Use of time clock by employees.b) Existence and use of adequate chart of accounts.4. Select a sample of payroll check numbers and:a) Account for existence and recording of paychecks.b) Examine paychecks for President's signature.c) Examine checks for proper endorsement.d) Compare cancelled checks with personnel records. 18-29 (continued)e) Compare date on check with date recorded inpayroll journal or listing and on the time card.5. Select a sample of payroll entries from the payrolljournal or listing and perform the following steps:a) Obtain time cards, examine for President'sapproval, and trace hours to payroll journal orlisting.b) Examine personnel files and authorization forrates and deductions.c) Recompute gross pay, deductions, and net pay.d) Compare account classification with chart ofaccounts or procedures manual.6. Select a sample of payroll journals and perform thefollowing steps:a) Examine payroll journal for approval by Clark.b) Trace postings to general ledger.d. A sampling data sheet follows. Note that this sampling datasheet was prepared using attributes sampling. The onlydifference between this approach and a nonstatisticalapproach is the determination of sample size. Undernonstatistical sampling, students’ sample sizes will vary.Internet Problem Solution: Outsourcing the Payroll Function18-1 You have just landed a new client for your firm - a new hotel constructed in Atlanta, Georgia. Although construction of the hotel is complete, the company has not completed hiring all the necessary employees. The company's president has approached you with several questions related to the company's payroll. Please answer the following questions posed by the president about outsourcing the payroll function. (Hint: Visit [/] to find some of your answers. You may need to do other research on the Internet to answer these questions.)1.“I'm considering outsourcing our payroll function. What aresome of the issues that I should think about before deciding to outsource?”Answer: Student responses will vary. However, the following issues are among those that the president should consider:∙Typical outsourcing agreements are long-term. A long-term contract with the outsourcing provider mayprove inflexible if future business needsnecessitate a change.∙Outsourcing results in a loss of control over the company’s data. The president may be concernedabout sharing of data with competitors.∙The president should also consider the adequacy of the service provider’s system. Does the providerutilize the most current technology? Can theprovider manage a significant increase in volume oftransactions? Will the provider continue to offerexcellent service?∙Can the service provider deliver all of the necessary salaries and wages reports and analysesthat the company may want or need?∙Costs are typically lower when outsourcing major IS functions. The company will be able to avoidinvestments in certain hardware and software as wellas in personnel if the payroll function isoutsourced.2.“If I decide to outsource the payroll function, whatpayroll service companies would you suggest I consider?”Answer: There are a variety of payroll service companies including ADP [/] and Ceridian [/].18-1 (continued)3.“I have several vacant positions at my new hotel. I'mconcerned that my beginning salaries might be too low. Couldyou find out what nationwide median salaries are for thevacant positions? The vacant positions are: restaurantmanager, catering sales manager, security director, and thefront office manager. Make certain that you let me know whatsalaries are in our region of the country. I may have notconsidered that properly when I advertised the positions.”Answer: Median salary information can be found on’s web site. The “HCECompensation”link[/careerresources/lodgprop.asp] will direct students to the appropriate location.There they will have to select the appropriate categorywhich, in this case, is a “lodging property.”Studentsshould then scroll down the salaries information until theyfind data for the South Atlantic Region. The median salariesare: restaurant manager - $37,151.62; catering sales manager- $38,472.10; security director - $52,810.67; and frontoffice manager - $37,947.73. You might wish to point out tothe students the difficulty in interpreting such data asthat presented on this site. Specifically, median salariesdata are presented for a number of categories such as sizeof facility, geographic region, and location. Theinquisitive student should inquire about these differencesand so a liberal view may be appropriately applied whengrading this component of the problem.(Note: Internet problems address current issues using Internet sources. Because Internet sites are subject to change, Internet problems and solutions are subject to change. Current information on Internet problems is available at /arens).。
审计学：一种整合方法_第12版_英文版Cha
Financial Statements Cycles
Learning Objective 4
• Classify transactions and account • balances into financial statement • cycles and identify benefits of a • cycle approach to segmenting • the audit.
Objective of Conducting an Audit o f Financial Statements
The objective of the ordinary audit of financial statements is the expression of an opinion of the fairness with which they present fairly, in all respects, financial position, result of operations, and its cash flows in conformity with GAAP.
Management’s Responsibilities
Management is responsible for the financial statements and for internal control.
The Sarbanes-Oxley Act increases management’s responsibility for the finຫໍສະໝຸດ ncial statements.
The Sarbanes-Oxley Act provides for criminal penalties for anyone who knowingly falsely certifies the statements.
审计学：一种整合方法_第12版_英文版Chapter18共32页
Accounts in the Payroll and Personnel Cycle
Withheld Income Taxes and Other Deductions
Cash in Bank
Paymenning balance
Payroll withholding
18 - 1
Accounts in the Payroll and Personnel Cycle
The overall objective in the audit of the payroll and personnel cycle is to evaluate whether the account balances affected by the cycle are fairly stated in accordance with generally accepted accounting principles.
Timekeeping and Payroll Preparation
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18 - 9
Payroll Master File
A payroll master file is used for recording each payroll transaction for each employee and maintaining total employee wages paid for the year to date.
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审计学：一种整合方法_第12版_英文版Chapter16
16 - 12
Selected Comparative Information
Percent Percent change change 12/31/07 2006- 12/31/06 2005($000) 2007 ($000) 2006
12/31/05 ($000)
Sales Gross margin Accounts receivable Bad debt expense Total current assets Total assets Net earnings Number of accounts receivable Number of accts. rec. with balances over $100,000
Write-off of uncollectible accounts as a percentage of total accounts receivable
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Analytical Procedures for the Sales and Collection Cycle
Compare by product line: Gross margin percentage with previous years Sales by month over time Sales returns and allowances as a percentage of gross sales with previous years
ACCOUNTS RECEIVABLE BALANCE-RELATED AUDIT OBJECTIVES Translation-related audit objectives
审计学：一种整合方法_第12版_英文版Chapter14
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14 - 9
Bad Debt Expense Transaction
Accounts Business Functions Documents and Records
Accounts receivable trial balance
Monthly statement
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Processing and Recording Cash Receipts
Audit of the Sales and Collection Cycle: Tests of Controls and Substantive Tests of Transactions
Chapter 14
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Accounts in the Sales and Collection Cycle
Sales Cash sales
Sales on account Accounts Receivable Beginning Cash receipts balance Sales on account Ending balance Sales returns and allowances Write-off of uncollectible accounts
审计学一种整合方法第12版英文版Cha课件
It requires the CEO and the CFO of public companies to certify the quarterly and annual financial statements submitted to the SEC.
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Classify transactions and account balances into financial statement cycles and identify benefits of a cycle approach to segmenting the audit.
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Management’s Responsibilities
The Sarbanes-Oxley Act provides for criminal penalties for anyone who knowingly falsely certifies the statements.
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6 - 15
Relationships Among Transaction Cycles
General cash
Capital acquisition and repayment cycle
审计学一种整合方法第英文版
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1-4
Information and Established Criteria
The Act established the Public Company Accounting Oversight Board.
It also requires auditors to attest to management reports on the effectiveness of internal control over financial reporting.
1-3
Nature of Auditing
Auditing is the accumulation and evaluation of evidence about information to determine and report on the degree of correspondence between the information and established criteria.
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Competent, Independent Person
The auditor must be qualified to understand the criteria used and must be competent to know the types and amount of evidence to accumulate to reach the proper conclusion after the evidence has been examined.
审计学：一种整合方法 阿伦斯 英文版 第12版 课后答案 Chapter 11 Solutions Manual
Chapter 11Fraud AuditingReview Questions11-1Fraudulent financial reporting is an intentional misstatement or omission of amounts or disclosures with the intent to deceive users. Two examples of fraudulent financial reporting are accelerating the timing of recording sales revenue to increased reported sales and earnings, and recording expenses as fixed assets to increase earnings.11-2Misappropriation of assets is fraud that involves theft of an entity’s assets. Two examples are an accounts payable clerk issuing payments to a fictitious company controlled by the clerk, and a sales clerk failing to record a sale and pocketing the cash receipts.11-3 Fraudulent financial reporting is an intentional misstatement or omission of amounts or disclosures with the intent to deceive users, while misappropriation of assets is fraud that involves theft of an entity’s assets. Frauds involving financial reporting are usually larger than frauds involving misappropriation of assets, usually involve top management, and do not directly involve theft of company assets.11-4 The three conditions of fraud referred to as the ―fraud triangle‖ are (1) Incentives/Pressures; (2) Opportunities; and (3) Attitudes/Rationalization. Incentives/Pressures are incentives of management or other employees to commit fraud. Opportunities are circumstances that allow management or employees to commit fraud. Attitudes/Rationalization are indications that an attitude, character, or set of ethical values exist that allow management or employees to commit a dishonest act or they are in an environment that imposes sufficient pressure that causes them to rationalize committing a dishonest act.11-5 The following are example of risk factors for fraudulent financial reporting for each of the three fraud conditions:Incentives/Pressures- The company is under pressure to meet debt covenants or obtain additional financing.Opportunities –Ineffective oversight of financial reporting by the board of directors allows management to exercise discretion overreporting.Attitudes/Rationalization –Management is overly aggressive. For example, the company may issue aggressive earnings forecasts, ormake extensive acquisitions using company stock.11-6 The following are example of risk factors for misappropriation of assets for each of the three fraud conditions:Incentives/Pressures- The individual is unable to meet personal financial obligations.Opportunities –There is insufficient segregation of duties that allows the individual to handle cash receipts and related accountingrecords.Attitudes/Rationalization –Management has disregarded the inadequate separation of duties that allows the potential theft ofcash receipts.11-7 Auditors use several sources to gather information about fraud risks, including:Information obtained from communications among audit team members about their knowledge of the company and its industry,including how and where the company might be susceptible tomaterial misstatements due to fraud.Responses to auditor inquiries of management about their views of the risks of fraud and about existing programs and controls toaddress specific identified fraud risks.Specific risk factors for fraudulent financial reporting and misappropriations of assets.Analytical procedures results obtained during planning that indicate possible implausible or unexpected analytical relationships.Knowledge obtained through other procedures such as client acceptance and retention decisions, interim review of financialstatements, and consideration of inherent or control risks.11-8 SAS 99 requires the audit team to conduct discussions to share insights from more experienced audit team members and to ―brainstorm‖ ideas that address the following:1. How and where they believe the entity’s financial statements mightbe susceptible to material misstatement due to fraud. This shouldinclude consideration of known external and internal factorsaffecting the entity that mightcreate an incentive or pressure for management to commit fraud.provide the opportunity for fraud to be perpetrated.indicate a culture or environment that enables management to rationalize fraudulent acts.2. How management could perpetrate and conceal fraudulent financialreporting.3. How assets of the entity could be misappropriated.4. How the auditor might respond to the susceptibility of materialmisstatements due to fraud.11-9 Auditors must inquire whether management has knowledge of any fraud or suspected fraud within the company. SAS 99 also requires auditors to inquire of the audit committee about its views of the risks of fraud and whether the audit committee has knowledge of any fraud or suspected fraud. If the entity has an internal audit function, the auditor should inquire about internal audit’s views of fraud risks and whether they have performed any procedures to identify or detect fraud during the year. SAS 99 further requires the auditor to make inquiries of others within the entity whose duties lie outside the normal financial reporting lines of responsibility about the existence or suspicion of fraud.11-10The corporate code of conduct establishes the ―tone at the top‖ of the importance of honesty and integrity and can also provide more specific guidance about permitted and prohibited behavior. Examples of items typically addressed in a code of conduct include expectations of general employee conduct, restrictions on conflicts of interest, and limitations on relationships with clients and suppliers.11-11 Management and the board of directors are responsible for setting the ―tone at the top‖ for ethical behavior in the company. It is important for management to behave with honesty and integrity because this reinforces the importance of these values to employees throughout the organization.11-12 Management has primary responsibility to design and implement antifraud programs and controls to prevent, deter, and detect fraud.The audit committee has primary responsibility to oversee the organization’s financial reporting and internal control processes and to p rovide oversight of management’s fraud risk assessment process and antifraud programs and controls.11-13The three auditor responses to fraud are: (1) change the overall conduct of the audit to respond to identified fraud risks; (2) design and perform audit procedures to address identified risks; and (3) perform procedures to address the risk of management override of controls.11-14Auditors are required to take three actions to address potential management override of controls: (1) examine journal entries and other adjustments for evidence of possible misstatements due to fraud; (2) review accounting estimates for biases; and (3) evaluate the business rationale for significant unusual transactions.11-15 Three main techniques use to manipulate revenue include: (1) recording of fictitious revenue; (2) premature revenue recognition including techniques such as bill-and-hold sales and channel stuffing; and (3) manipulation of adjustments to revenue such as sales returns and allowance and other contra accounts.11-16 Cash register receipts are particularly susceptible to theft. The notice ―your meal is free if we fail to give you a receipt‖ is designed to ensure that everycustomer is given a receipt and all sales are entered into the register, establish accountability for the sale.11-17 The three types of inquiry are informational, assessment, and interrogative. Auditors use informational inquiry to obtain information about facts and details that the auditor does not have.For example, if the auditor suspects financial statement fraud involving improper revenue recognition, the auditor may inquire of management as to revenue recognition policies. The auditor uses assessment inquiry to corroborate or contradict prior information. In the previous example, the auditor may attempt to corroborate the information obtained from management by making assessment inquiries of individuals in accounts receivable and shipping. Interrogative inquiry is used to determine if the interviewee is being deceptive or purposefully omitting disclosure of key knowledge of facts, events, or circumstances. For example, a senior member of the audit team might make interrogative inquiries of management or other personnel about key elements of the fraud where earlier responses were contradictory or evasive.11-18 When making inquiries of a deceitful individual, three examples of verbal cues are frequent rephrasing of the question, filler terms such as ―well‖ or ―to tell the truth,‖ and forgetfulness or acknowledgements of nervousne ss. Three examples of nonverbal cues by the individual are creating physical barriers by blocking their mouth, leaning away from the auditor, and signs of stress such as sweating or fidgeting.11-19When the auditor suspects that fraud may be present, SAS 99 requires the auditor to obtain additional evidence to determine whether material fraud has occurred. SAS 99 also requires the auditor to consider the implications for other aspects of the audit. When the auditor determines that fraud may be present, SAS 99 requires the auditor to discuss the matter and audit approach for further investigation with an appropriate level of management that is at least one level above those involved, and with senior management and the audit committee, even if the matter might be considered inconsequential. For public company auditors, the discovery of fraud of any magnitude by senior management is at least a significant deficiency and may be a material weakness in internal control over financial reporting. This includes fraud by senior management that results in even immaterial misstatements. If the public company auditor decides the fraud is a material weakness, the auditor’s report on internal control over financial reporting will contain an adverse opinion.■Multiple Choice Questions From CPA Examinations11-20 a. (3) b. (4) c. (1) d. (2)11-21 a. (1) b. (4)11-22 a. (1) b. (1) c. (1)■Discussion Questions and Problems11-2311-24a. Management fraud is often called fraudulent financial reporting, andis the intentional misstatement or omission of amounts ordisclosures by management with the intent to deceive users. Incontrast, defalcations, which are also called misappropriation ofassets, involve theft of an entity’s assets, and normally involveemployees and others below the management level.b. The auditor’s responsibility to detect management fraud is thesame as for other errors that affect the financial statement. Theauditor should design the audit to obtain reasonable assurance thatmaterial misstatements in the financial statements due to errors orfraud are detected.c. The auditor should evaluate the potential for management fraudusing the fraud triangle of incentives/pressures, opportunities, andattitudes/ rationalizations.Incentives/pressures –Auditors should evaluate incentives and pressures that management or other employees mayhave to misstate financial statements, including:1. Declines in the financial stability or profitability of thecompany due to economic, industry, or companyoperating conditions.2. Pressure to meet debt repayment or debt covenantterms.3. Net worth of managers or directors is materiallythreatened by financial performance.Opportunities –Circumstances provide an opportunity for management to misstate financial statements, such as:1. Financial statements include significant accountingestimates that are difficult to verify.2. Ineffective board of director or audit committeeoversight.3. High turnover in accounting personnel or ineffectiveaccounting, internal auditing, or IT staff.Attitudes/Rationalizations –An attitude, character, or set of values exist that allows management to rationalizecommitting a dishonest act.1. Inappropriate or ineffective communication of entityvalues.2. History of violations of securities laws or other lawsand regulations.3. Aggressive or unrealistic management goals orforecasts.d. There are potentially many factor s that should heighten an auditor’sconcern about the existence of management fraud. The factors (1) of an intended public placement of securities, and (2) management compensation dependent on operating results are both factors that affect incentives to manipulate financial statements. The auditor should be alert for other incentives, such as the existence of debt covenants or planned use of stock to acquire another company that may provide incentives to manipulate the financial statements.The third factor of deficient internal control reflects both an opportunity to misstatement financial statements, and an attitude that allows rationalization of actions to misstate the financial statements. As additional examples, the auditor should be alert to the potential to use accounting estimates or discretion over the timing of revenues to misstate financial statements. The auditor should also consider the attitude of management, and whether they are overly aggressive or have previously violated securities laws or other regulations.In addition to the risk factors from the fraud triangle, the auditor should consider other signals of the potential existence of management fraud. These signals may include unusual changes inratios or other performance measures, as well as inquiries ofmanagement and communication amount the audit team.11-25a.b. All of the deficiencies increase the likelihood of misappropriation of assets,by allowing individuals access to cash receipts or failing to maintain adequate records to establish accountability for cash receipts.c. The deficiencies have less of an effect on the likelihood of fraudulentfinancial reporting than they do for misappropriation of assets. The first four deficiencies increase the likelihood of fraudulent financial reporting forreported revenues due to the lack of adequate records to establish the number of patrons.11-261. a. Errorb. Internal verification of invoice preparation and posting by anindependent person.c. Test clerical accuracy of sales invoices.2. a. Fraud.b. The prelisting of cash receipts should be compared to thepostings in the accounts receivable master file and to thevalidated bank deposit slip.c. Trace cash received from prelisting to cash receipts journal.Confirm accounts receivable.3. a. Error.b. Use of prenumbered bills of lading that are periodicallyaccounted for.c. Trace a sequence of prenumbered bills of lading to recordedsales transactions. Confirm accounts receivable at year-end.4. a. Error.b. No merchandise may leave the plant without the preparationof a prenumbered bill of lading.c. Trace credit entries in the perpetual inventory records to billsof lading and the sales journal. Confirm accounts receivableat year-end.5. a. Error.b. Internal review and verification by an independent person.c. Test accuracy of invoice classification.6. a. Errorb. Online sales are supported by shipping documents andapproved online customer orders.c. Trace sales journal or listing entries to supporting documentsfor online sales, including sales invoices, shippingdocuments, sale orders, and customer orders.7. a. Errorb. Sales invoices are prenumbered, properly accounted for inthe sales journal, and a notation on the invoice is made ofentry into the sales journal.c. Account for numerical sequence of invoices recorded in thesales journal, watching for duplicates. Confirm accountsreceivable at year-end.8. a. Fraud.b. All payments from customers should be in the form of acheck payable to the company. Monthly statements shouldbe sent to all customers.c. Trace from recorded sales transactions to cash receipts forthose sales; confirm accounts receivable balances at year-end.11-27a. The lack of separation of duties was the major deficiency thatpermitted the fraud for Appliance Repair and Service Company.Gyders has responsibility for opening mail, prelisting cash, updatingaccounts receivable, and authorizing sales allowances and write-offs for uncollectible accounts. It is easy for Gyders to take the cashbefore it is prelisted and to charge off an accounts receivable as asales allowance or as a bad debt.b. The benefit of prelisting cash is to immediately document cashreceipts at the time that they are received by the company.Assuming all cash is included on the prelisting, it is then easy forsomeone to trace from the prelisting to the cash receipts journaland deposits. Furthermore, if a dispute arises with a customer, it iseasy to trace to the prelisting and determine when the cash wasactually received. The prelisting should be prepared by acompetent person who has no significant responsibilities foraccounting functions. The person should not be in a position towithhold the recording of sales, adjust accounts receivable or salesfor credits, or adjust accounts receivable for sales returns andallowances or bad debts.c. Subsequent to the prelisting of cash, it is desirable for anindependent person to trace from the prelisting to the bankstatement to verify that all amounts were deposited. This can bedone by anyone independent of whoever does the prelisting, orprepares or makes the deposit.d. A general rule that should be followed for depositing cash is that itshould be deposited as quickly as possible after it is received, andhandled by as few people as possible. It is, ideally, the personreceiving the cash that should prepare the prelisting and preparethe deposit immediately afterward. That person should then depositthe cash in the bank. Any unintentional errors in the preparation ofthe bank statement should be discovered by the bank. Theauthenticated duplicate deposit slip should be given to theaccounting department who would subsequently compare the totalto the prelisting. When an independent person prepares the bankreconciliation, there should also be a comparison of the prelisting tothe totals deposited in the bank.Any money taken before the prelisting should be uncovered by the accounting department when they send out monthlystatements to customers. Customers are likely to complain if theyare billed for sales for which they have already paid.11-28b. Deficiencies 1, 2, 4, 5, and 6 increase the likelihood of fraudinvolving misappropriation of assets. Fraud involvingmisappropriation of assets is relatively common for payroll,although the amounts are often not material. Fraudulent financialreporting involving payroll is less likely.11-29a. The auditor must conduct the audit to detect errors and fraud,including embezzlement, that are material to the financialstatements. It is more difficult to discover embezzlements thanmost types of errors, but the auditor still has significantresponsibility. In this situation, the deficiencies in internal controlare such that it should alert the auditor to the potential for fraud. Onthe other hand, the fraud may be immaterial and therefore not be ofmajor concern. The auditor of a public company must also considerthe impact of noted deficiencies when issuing the auditor’s reporton internal control over financial reporting. When noted deficienciesare considered to be material weaknesses, whether individually orcombined with other deficiencies, the auditor’s r eport must bemodified to reflect the presence of material weaknesses.b. The following deficiencies in internal control exist:1. The person who reconciles the bank account does notcompare payees on checks to the cash disbursementsjournal.2. The president signs blank checks, thus providing no controlover expenditures.3. No one checks invoices to determine that they are cancelledwhen paid.c. To uncover the fraud, the auditor could perform the following procedures:1. Comparison of payee on checks to cash disbursementsjournal.2. Follow up all outstanding checks that did not clear the bankduring the engagement until they clear the bank. Comparepayee to cash disbursements journal.11-30a.* Fraud involves intent. The circumstances suggest that there wasno intent on the part of Franklin to be deceptive. If the purpose ofomitting the footnote was to deceive the bank, then this casewould represent fraudulent financial reporting.11-311. a. There may be unrecorded cash disbursement transactions.b. Because the transactions relate to cash disbursements, thecash account will be affected. The accounts payableaccount may be misstated if the disbursement is thepayment on an account. If the disbursement is for the directpayment of an expense or is related to the purchase ofassets, then expense or asset accounts will be affected.Payments on other liability accounts would impact thoseliability accounts.c. Existing transactions are recorded (completeness).2. a. There may be fictitious accounts receivable accountsincluded in the master file.b. Accounts receivable and sales are likely to be affected byfictitious receivables.c. Amounts included exist (existence).3. a. Management may have manipulated key assumptionsso that pension expense and pension liability amounts wouldbe lower.b. Pension expense and pension liability accounts are likely tobe affected.c. Amounts included are stated at the correct values(Accuracy).4. a. The client may have shipped and recorded largeamounts of goods close to year end to third parties who mayhold the goods on consignment or who have full rights ofreturn. These shipments were made to record a fictitioussale and related receivable.b. Accounts receivable and sales and the related costs ofgoods sold and ending inventory would be affected by thisactivity.c. Recorded amounts existed (occurrence).5. a. Assets that were misappropriated may be concealedby recording purchase transactions using non-standard,fictitious vendor numbers.b. Accounts payable would be overstated and the related assetaccount would be increased by the unauthorized transaction.c. Recorded amounts existed (occurrence).6. a. Sales may be fictitiously recorded before any goodswere shipped.b. Sales and accounts receivable.c. Recorded amounts existed (occurrence).■Case11-32a. There are many fraud risk factors indicated in the dialogue. Among thefraud risk factors are the following:A significant portion of Mint’s compensation is represented bybonuses and stock options. Although this arrangement has beenapp roved by SCS’s Board of Directors, this may be a motivation forMint, the new CEO, to engage in fraudulent financial reporting.Mint’s statement to the stock analysts that SCS’s earnings would increase by 30% next year may be both an unduly aggressive andunrealistic forecast. That forecast may tempt Mint to intentionallymisstate certain ending balances this year that would increase theprofitability of the next year.SCS’s audit committee may not be sufficiently objective because Green, the chair of the audit committee, hired Mint, the new CEO,and they have been best friends for years.One individual, Mint, appears to dominate management without any compensating controls. Mint seems to be making all the importantdecisions without any apparent input from other members ofmanagement or resistance from the Board of Directors.There were frequent disputes between Brown, the prior CEO, who like Mint apparently dominated management and the Board ofDirectors, and Jones, the predecessor auditor. This fact mayindicate that an environment exists in which management will bereluctant to make any changes that Kent suggests.Management seems satisfied with an understaffed and ineffective internal audit department. This situation displays an inappropriateattitude regarding the internal control environment.Management has failed to properly monitor and correct a significant deficiency in its internal control—the lack of segregation of duties incash disbursements. This disregard for the control environment isalso a risk factor.Information about anticipated future layoffs has spread among the employees. This information may cause an increase in the risk ofmaterial misstatement arising from the misappropriation of assetsby dissatisfied employees.b. Kent has many misconceptions regarding the consideration of fraud in theaudit of SCS’s financial statements that are contained in the dialogue.Among Kent’s misconceptions are the following:Kent states that the auditor does not have specific duties regarding fraud. In fact, an auditor has a responsibility to specifically assessthe risk of material misstatement due to fraud and to consider thatassessment in designing the audit procedures to be performed.Kent is not concerned about Mint’s employment contract. Kent shou ld be concerned about a CEO’s contract that is based primarilyon bonuses and stock options because such an arrangement mayindicate a motivation for management to engage in fraudulentfinancial reporting.Kent does not think that Mint’s forecast for 2006 has an effect on the financial statement audit for 2005. However, Kent shouldconsider the possibility that Mint may intentionally misstate the2005 ending balances to increase the reported profit in 2006.Kent believes the audit programs are fine as is. Actually, Kent should modify the audit programs because of the many risk factorsthat are present in the SCS audit.Kent is not concerned that the internal audit department is ineffective and understaffed. In fact, Kent should be concerned thatSCS has permitted this situation to continue because it representsa risk factor relating to misstatements arising from fraudulentfinancial reporting and/or the misappropriation of assets.Kent states that an auditor provides no assurances about fraud because that is management’s job. In fact, an auditor has aresponsibility to plan and perform an audit to obtain reasonableassurance about whether the financial statements are free ofmaterial misstatement, whether caused by error or fraud.Kent is not concerned that t he prior year’s material weakness in internal control has not been corrected. However, Kent should beconcerned that the lack of segregation of duties in the cashdisbursements department represents a risk factor relating tomisstatements arising from the misappropriation of assets. If theclient was a publicly traded company, the presence of anuncorrected material weakness would significantly affect theauditor’s report on internal control over financial reporting.Kent does not believe the rumors about big layoffs in the next month have an effect on audit planning. In planning the audit, Kentshould consider this a risk factor because it may cause an increasein the risk of material misstatement arising from misappropriation ofassets by dissatisfied employees.c. SAS 99 requires that auditors document the following matters related tothe auditor’s consideration of material misstatements due to fraud:The discussion among engagement team personnel in planning the audit about the susceptibility of the enti ty’s financial statements tomaterial fraud.Procedures performed to obtain information necessary to identify and assess the risks of material fraud.Specific risks of material fraud that were identified, and a description of the auditor’s response to tho se risks.Reasons supporting a conclusion that there is not a significant risk of material improper revenue recognition.。
审计学：一种整合方法_第12版_英文版Chapter01-46页PPT资料
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
1-1
Learning Objective 1
Describe auditing.
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
1-2
Nature of Auditing
Auditing is the accumulation and evaluation of evidence about information to determine and report on the degree of correspondence between the information and established criteria.
1-7
Audit of a Tax Return Example
Competent, independent
person
Information
Federal tax returns filed by taxpayer
Internal Revenue
审计学：一种整合方法 阿伦斯 英文版 第12版 课后答案 Chapter 16 Solutions Manual
Chapter 16Completing the Tests in theSales and Collection Cycle:Accounts ReceivableReview Questions16-1Tests of details of balances are designed to determine the reasonableness of the balances in sales, accounts receivable, and other account balances that are affected by the sales and collection cycle. Such tests include confirmation of accounts receivable, and examining documents supporting the balance in these accounts.Tests of controls and substantive tests of transactions for the sales and collection cycle are intended to determine the effectiveness of internal controls and to test the substance of the transactions that are produced by this cycle. Such tests consist of activities such as examining sales invoices in support of entries in the sales journal, reconciling cash receipts, or reviewing the approval of credit.The results of the tests of controls and substantive tests of transactions affect the procedures, sample size, timing and items selected for the tests of details of balances (i.e., effective internal controls will result in reduced testing when compared to the tests of details required in the case of inadequate internal controls). The results of tests of controls also affect the public company auditor’s report on internal controls over financial reporting.16-2SAS 67 (AU 330.20) discusses the use of negative accounts receivable confirmations as follows:The negative form requests the recipient to respond only if he or she disagrees with the information stated on the request. Negative confirmation requests may be used to reduce audit risk to an acceptable level when (a) the combined assessed level of inherent and control risk is low, (b) a large number of small balances is involved, and (c) the auditor has no reason to believe that the recipients of the requests are unlikely to give them consideration. For example, in the examination of demand deposit accounts in a financial institution, it may be appropriate for an auditor to include negative confirmation re quests with the customers’ regular statements when the combined assessed level of inherent and control risk is low and the auditor has no reason to believe that the recipients will not consider the requests. The auditor should consider performing other substantive procedures to supplement the use of negative confirmations.16-2 (continued)The preceding requirement that negative confirmations are considered appropriate where the internal controls of the sales and collection cycle are effective is violated by Cynthia Roberts' approach. Not only is her approach questionable from the standpoint that nonresponses have not necessarily proved the existence of the receivable, but her confirmation at an interim date requires her to assume an assessed control risk less than maximum, but she has not tested the related internal controls to justify this assumption.16-3The following are analytical procedures for the sales and collection cycle, and potential misstatements uncovered by each test. Each ratio should be compared to previous years.16-4The following are balance-related audit objectives and related audit procedures for the audit of accounts receivable.16-5The most important objectives satisfied by confirmations are existence, rights, and accuracy. In extreme cases, confirmations are also useful tests for cutoff. Sometimes confirmations may also help the auditor satisfy the completeness objective.16-6 A necessary audit procedure is to test the information on the client's trial balance for detail tie-in. The footing in the total column and the columns depicting the aging must be checked and the total on the trial balance reconciled to the general ledger to determine that all accounts are included in the listing.The master file records are the tie-in between tests of controls, substantive tests of transactions, and tests of details of balances. The aged trial balance is the listing of the master file. Since the auditor uses the aged trial balance in tests of details, he or she must be sure that information is the same as that tested in tests of controls and substantive tests of transactions. In addition, a sample of individual balances is traced to the master file to determine that the trial balance has been properly summarized from the master file. In most cases, it will not be necessary to trace each amount to the master file unless a significant number of misstatements is noted and it is determined that reliance cannot be place upon the trial balance with less than 100% testing. Normally a sample of entries on the trial balance could be traced to the master file and would be sufficient to draw a conclusion as to the overall accuracy of the trial balance.16-7The purpose of the accuracy tests of gross accounts receivable is to determine the correctness of the total amounts receivable from customers. These tests normally consist of confirmation of accounts receivable or examination of shipping documents in support of the shipment of goods to customers.The purpose of the test of the realizable value of receivables is to estimate the amount of the accounts receivable balance that will not be collected. To estimate this amount, the auditor normally reviews the aging of the accounts receivable, analyzes subsequent cash payments by customers, discusses the collectibility of individual accounts with client personnel, and examines correspondence and financial statements of significant customers.16-8In most audits it is more important to carefully test the cutoff for sales than for cash receipts because sales cutoff misstatements are more likely to affect net earnings than are cash receipt cutoff misstatements. Cash receipt cutoff misstatements generally lead to a misclassification of accounts receivable and cash and, therefore, do not affect income.To perform a cutoff test for sales, the auditor should obtain the number of the last shipping document issued before year-end and examine shipping documents representing shipments before and after year-end and the related sales invoices to determine that the shipments were recorded as sales in the appropriate period.The propriety of the cash receipts cutoff is determined through tests of the year-end bank reconciliation. Deposits in transit at year-end should be traced to the subsequent bank statement. Any delays in crediting deposits by the bank should be investigated to determine whether the cash receipts books were held open.16-9The value of accounts receivable confirmation as evidence can be visualized more clearly by relating it to tests of controls and substantive tests of transactions. If the beginning balance in accounts receivable can be assumed to be correct and careful tests of the controls have been performed, the auditor should be in an excellent position to evaluate the fairness of the ending balance in accounts receivable.Confirmations are typically more effective than tests of controls and substantive tests of transactions for discovering certain types of misstatements. These include invalid accounts, disputed amounts, and uncollectible accounts resulting from the inability to locate the customer. Although confirmations cannot guarantee the discovery of any of these types of misstatements, they are more reliable than tests of controls and substantive tests of transactions, because tests of controls and substantive tests of transactions rely upon internally created documents, whereas confirmations are obtained from independent sources.There are two instances in which confirmations are less likely to uncover omitted transactions and amounts than tests of controls and substantive tests of transactions. First, in order to send a confirmation, it is necessary to have a list of accounts receivable from which to select. Naturally, an omitted account will not be included in the population from which the auditor is selecting the sample. Second, if an account with an omitted transaction is confirmed, customers are less likely to respond to the confirmation, or, alternatively, will state that it is correct. Tracing shipping documents or sales orders to the related duplicate sales invoice and the accounts receivable master file is an effective method of discovering omitted transactions.Clerical errors in billing customers and recording the amounts in the accounts can be effectively discovered by confirmation, tests of controls, or substantive tests of transactions. Confirmations are typically more effective in uncovering overstatement of accounts receivable than understatements, whereas tests of controls and substantive tests of transactions are effective for discovering both types. The important concept in this discussion is the existence of both a complementary and a substitute relationship between tests of controls and substantive tests of transactions, and confirmations. They are complementary in that both types of evidence, when combined, provide a higher level of overall assurance of the fair presentation of sales, sales returns and allowances, and accounts receivable than can result from either type considered separately. The strengths of tests of controls and substantive tests of transactions combined with the strengths of confirmation result in a highly useful combination. The two types of evidence are substitutes in the sense that the auditor can obtain a given level of assurance by decreasing the tests of controls and substantive tests of transactions if there is an offsetting increase in the confirmation of accounts receivable. The extent to which the auditor should rely upon the tests of controls and substantive tests of transactions is dependent upon his or her evaluation of the effectiveness of internal controls. If the auditor has carefully evaluated internal control, tested internal controls for effectiveness, and concluded that the internal controls are likely to provide correct results, it is appropriate to reduce the confirmation of accounts receivable. On the other hand, it would be inappropriate to bypass confirmation altogether.In the situation being addressed in this problem, the auditor will want to put more emphasis on tests of controls and substantive tests of transactions than confirmations because of the nature of the customers and the strengths in internal control. Nevertheless, both should be used, regardless of the requirements of the AICPA.16-10 There are two common types of confirmations used for confirming accounts receivable: "positive" confirmations and "negative" confirmations. A positive confirmation is a letter, addressed to the debtor, requesting that the recipient indicate directly on the letter whether the stated account balance is correct or incorrect and, if incorrect, by what amount. A negative confirmation is also a letter, addressed to the debtor, but it requests a response only if the recipient disagrees with the amount of the stated account balance. A positive confirmation is more reliable evidence because the auditor can perform follow-up procedures if a response is not received from the debtor. With a negative confirmation, failure to reply must be regarded as a correct response, even though the debtor may have ignored the confirmation request.Offsetting the reliability disadvantage, negative confirmations are less expensive to send than positive confirmations, and thus more of them can be distributed for the same total cost. The determination of which type of confirmation to be sent is an auditor's decision, and it should be based on the facts in the audit. SAS 67 (AU 330) states that it is acceptable to use negative confirmations only when all of the following circumstances are present: Accounts receivable is made up of a large number of smallaccounts.Combined assessed control risk and inherent risk is low.There is no reason to believe that the recipients of the confirmations are unlikely to give them consideration.Typically, when negative confirmations are used, the auditor is using a reduced control risk assessment in the audit of accounts receivable. It is also common to use negative confirmations for audits of hospitals, retail stores, and other industries where the receivables are due from the general public. In these cases, far more assurance is obtained from tests of controls and substantive tests of transactions than from confirmations.It is also common to use a combination of negative and positive confirmations by sending the positives to accounts with large balances and negatives to those with small balances. This allows the auditor to focus the confirmation testing on large account balances, while still testing a representative sample from the rest of the population at minimal cost.16-11 It is acceptable to confirm accounts receivable prior to the balance sheet date if the internal controls are adequate and can provide reasonable assurance that sales, cash receipts, and other credits are properly recorded between the date of the confirmation and the end of the accounting period. Other factors the auditor is likely to consider in making the decision are the materiality of accounts receivable and the auditor's exposure to lawsuits because of the possibility of client bankruptcy and similar risks. If the decision is made to confirm accounts receivable prior to year-end, it is necessary to test the transactions occurring between the confirmation date and the balance sheet date by examining internal documents and performing analytical procedures at year-end.16-12 The most important factors affecting the sample size in confirmations of accounts receivable are:Tolerable misstatementInherent risk (relative size of total accounts receivable, number of accounts, prior year results, and expected misstatements) Control riskAchieved detection risk from other substantive tests (extent and results of substantive tests of transactions, analytical procedures,and other tests of details)Type of confirmation (negatives normally require a larger sample size)16-13 In most confirmations of accounts receivable, some type of stratification is desirable. A typical approach to stratification is to consider both the size of the outstanding balance and the length of time an account has been outstanding as a basis for selecting the balances for confirmation, since these are the accounts that are more likely to include a significant misstatement. It is also important to sample some items from every material stratum of the population. Using this approach, the auditor will pay careful attention to the accounts in which misstatements are most likely to occur and will follow the guidelines set forth in Chapter 15 regarding the need to obtain a representative sample of the population.16-14 Alternative procedures are procedures performed on a positive confirmation not returned by the debtor using documentation evidence to determine whether the recorded receivable exists and is collectible. It is common to send second requests for confirmations and sometimes even third requests. Even with these efforts, some customers do not return the confirmations, so it is necessary to follow up with alternative procedures. The objective of the alternative procedures is to determine, by a means other than confirmation, whether the unconfirmed account existed and was properly stated at the confirmation date. For any confirmation not returned, the following documentation can be examined to verify the existence and accuracy of individual sales transactions making up the ending balance in accounts receivable:1. Subsequent cash receipts Evidence of the receipt of cashsubsequent to the confirmation date includes examining remittanceadvice, entries in the cash receipts records, or perhaps evensubsequent credits in the accounts receivable master file. Theexamination of evidence of subsequent cash receipts is usually themost useful alternative procedure because it is reasonable toassume that a customer would not make a payment unless it was avalid receivable. On the other hand, the fact of payment does notestablish whether there was an obligation on the date of theconfirmation. In addition, care should be used to match eachunpaid sales transaction with evidence of its payment as a test fordisputes or disagreements over individual outstanding invoices.2. Duplicate sales invoices These are useful to verify the actualissuance of a sales invoice and the actual date of the billing3. Shipping documents These are important to establish whether theshipment was actually made and as a test of cutoff.4. Correspondence with the client Usually it is unnecessary to reviewcorrespondence as a part of alternative procedures, but it can beused to disclose disputed and questionable receivables notuncovered by other means.The extent and nature of the alternative procedures depends primarily upon the materiality of the unconfirmed accounts, the nature and extent of the misstatements discovered in the confirmed responses, the subsequent cash receipts of the unconfirmed accounts, and the auditor's evaluation of the effectiveness of internal controls. It is normally desirable to account for all unconfirmed balances with alternative procedures, even if the amounts are small, as a means of properly generalizing from the sample to the population.16-15 Confirmation of accounts receivable is normally performed on only a sample of the total population. The purpose of the confirmation is to obtain outside verification of the balance of the account and to obtain an indication of the rate of occurrence of misstatements in the accounts. Most misstatements which are indicated by the differences on the confirmation replies will not be material; however, each difference must be analyzed to determine its effect and all others considered together on the total accounts receivable balance. Though the individual differences may not be material, they may indicate a material problem when extended to the entire population, and with regard to the internal controls over the accounts receivable.16-16 Three differences that may be observed in the confirmation of accounts receivable that do not constitute misstatements, and an audit procedure that would verify each difference are as follows:1. Payment has been made by the customer, but not received by theclient at the confirmation date. The subsequent payment should beexamined as to the date deposited.2. Merchandise shipped by the client has not been received by thecustomer at the confirmation date. The shipping documents shouldbe examined to verify that the goods were shipped prior toconfirmation date.3. Merchandise has been returned, but has not been received by theclient at the confirmation date. Receiving documents and the creditmemo should be examined.16-17 With regard to the sales and collection cycle, the auditor uses flowcharts, assessing control risk for the accounting cycle, tests of controls, and tests of details of balances in the determination of the likelihood of a material misstatement in the accounts affected by the sales and collection cycle. The flowcharts provide a means for the auditor to document and analyze the accounting systems as represented by the client. The auditor would then make an initial assessment of control risk based on the controls which are present in the accounting cycle as documented in the flowcharts, and would plan the tests of controls based upon the selection of the significant controls. The auditor would then perform the tests of the significant controls to determine the effectiveness of the controls and to plan the substantive tests that are necessary based upon the revised assessment of control risk for this accounting cycle. Finally, after considering the results of tests of controls and substantive tests of transactions, the auditor would perform tests of details of balances to determine whether material misstatements exist in the account balances.16-18 GAAP requires that sales returns and allowances be matched with the related sales if the amounts are material. However, most companies record sales returns and allowances in the period in which they occur, under the assumption of approximately equal, offsetting amounts at the beginning and end of each accounting period. This approach is acceptable, if the amounts are not significant. 16-19 Because customers who purchase online products are not able to physically examine the actual products before they purchase them, there are often more sales returns for online sales than for traditional sales systems. An auditor may need to evaluate online sales separately from traditional sales to determine an appropriate allowance for returned items. This, in turn, affects the auditor’s testing of any credit card receivables resulting from online sales.Multiple Choice Questions From CPA Examinations16-20 a. (4) b. (4) c. (2)16-21 a. (2) b. (4) c. (2) d. (2)16-22 a. (2) b. (1)Discussion Questions and Problems16-231. Detail tie-in2. Detail tie-in3. a. Existenceb. Accuracyc. Realizable value (if cash receipts relate to older accounts)4. a. Existenceb. Accuracy5. a. Existenceb. Accuracyc. Realizable value (if cash receipts relate to older accounts)6. Cutoff7. Rights8. Classification16-2416-24 (continued)16-2516-2616-27 a. A shipment should be recorded as a sale on the date of shipment or the passing of title, whichever occurs first. Ordinarily, a shipmentis considered a sale when it is shipped, picked up, or delivered by acommon carrier.b. The sales invoice number can be ignored, except to determine theshipping document number.c. After making the type of cutoff adjustments shown in part b, currentyear sales would be overstated by:Amount of sale2168 620.222169 1,914.302170 852.062171 1,250.502172 646.585,283.66The best way to discover the misstatement is to be on hand on the balance sheet date and record in the audit working papers the last shipping document issued in the current period. Later, the auditors can examine shipping documents before and after the balance sheet date to determine if they were correctly dated.An alternative, if there are perpetual records, is to follow up differences between physical inventory counts and perpetual record balances to determine if the cause was end of the period cutoff misstatements. Assume, for example, that there were 626 units of part X263 on hand August 31, but the perpetual records showed a total of 526, and a shipment of 100 units included on the perpetual August 31, that is a likely indication of a September shipment that had been dated August 31.d. The following procedures are usually desirable to test for salescutoff.1. Be present during the physical count on the last day of theaccounting period to determine the shipping documentnumber for the last shipment made in the current year.Record that number in the working papers.2. During year-end field work, select a sample of shippingdocuments preceding and succeeding those selected inprocedure 1. Shipping documents with the same or with asmaller number than the one determined in procedure 1should be included in current sales. Those with documentnumbers larger than that number should have beenexcluded from current sales.3. During year-end field work, select a sample of sales from thesales journal recorded in the last few days of the currentperiod, and a sample of those recorded for the first few daysin the subsequent period. Trace sales recorded in thecurrent period to related shipping documents to make surethat each one has a number equal to or smaller than the onein procedure 1. Similarly, trace sales recorded in thesubsequent period to make sure each sale has a relatedshipping document number greater than the one inprocedure 1.e. The following are effective controls and related tests of controls tohelp prevent cutoff misstatements.16-28 a. The two types of confirmations used for confirming accounts receivable are "positive" and "negative" confirmations. A positiveconfirmation is a letter, addressed to the debtor, requesting that therecipient indicate directly on the letter whether the stated accountbalance is correct or incorrect and, if incorrect, by what amount. Anegative confirmation requests a response from the debtor onlywhen the debtor disagrees with the stated amount.When deciding which type of confirmation to use, the auditor should consider the assessed control risk in the sales andcollection cycle, the make-up of the population, cost/benefitrelationship, and any information about the existence of theaccounts. Positive confirmations are more reliable but moreexpensive than negative confirmations. Positive confirmationsshould be used when the population is comprised of a smallnumber of large accounts, and when there are suspectedconditions of dispute or inaccuracy. When negative confirmationsare used, the auditor has normally assessed control risk belowmaximum and tested the internal controls for effectiveness.Negative confirmations are often used when accounts receivableare comprised of a large number of small accounts receivable fromthe general public.b. When evaluating the collectibility of accounts receivable, the auditormay review the aging of accounts receivable, analyze subsequent cash receipts from customers, discuss the collectibility of individual accounts with client personnel, and examine correspondence and financial statements of significant customers. Changes in the aging of receivables should be analyzed in view of any changes in the client's credit policy and in the current economic conditions.c. When customers fail to respond to positive confirmation requests,the CPA may not assume with confidence that these customers checked the request, found no disagreement, and therefore did not reply. Some busy customers will not take the time to check confirmation requests and will not respond, hence obvious exceptions may exist without being reported to the CPA. In the case of fraud or embezzlement, the perpetrators could perhaps prevent exceptions from being reported and prevent letters addressed to nonexistent customers from being returned from the post office as undeliverable. Confirmations returned as undeliverable by the post office will require appropriate action to obtain better addresses.Follow-up is necessary when customers do not reply because the CPA has selected the positive confirmation route for certain receivables, and the most logical step to follow first is to mail second requests.d. When no response is received to the second request for positiveconfirmation, the auditor should use alternative procedures. These normally include examination of the customer's remittance advice and related cash receipt. This is often a simple and effective check where cash receipts were received subsequent to the balance sheet date. Correspondence in the client's files will also sometimes offer satisfactory evidence. The auditor should also examine shipping documents, sales invoices, contracts, or other documents to substantiate that the charges were proper.In unusual cases, the CPA should mail a third request and possibly make telephone calls in an effort to get a reply directly from the customer. The CPA may find it necessary, where significant amounts are involved and circumstances are not clear, to investigate the existence and/or financial status of a customer.。
审计学：一种整合方法_第12版_英文版Chapter09
9 - 13
Estimated Total Misstatement and Preliminary Judgment
Estimated Misstatement Amount
Known Misstatement Tolerable and Direct Misstatement Projection Sampling Error
Allocate preliminary Step judgment about 2 materiality to segments
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
9-5
Steps in Applying Materiality
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
9-7
Set Preliminary Judgment About Materiality
Auditors decide early in the audit the combined amount of misstatements of the financial statements that would be considered material. This preliminary judgment is the maximum amount by which the auditor believes the statements could be misstated and still not affect the decisions of reasonable users.
审计学：一种整合方法_第12版_英文版Chapter01-文档资料
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
The Act established the Public Company Accounting Oversight Board.
It also requires auditors to attest to management reports on the effectiveness of internal control over financial reporting.
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
1-2
Learning Objective 1
Describe auditing.
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
The Demand for Audit and Other Assurance Services
Chapter 1
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
1-1
Sarbanes-Oxley Act
1-8
Audit of a Tax Return Example
Competent, independent
peral tax returns filed by taxpayer
审计学一种整合方式讲义
Learning Objective 2
Describe the fraud triangle and identify conditions for fraud.
The Fraud Triangle
Incentives/Pressures
Opportunities
Attitudes/Rationalization
A history of violations of laws is known
Management has a practice of making
overly aggressive or unrealistic forecasts
Examples of Risk Factors for Misappropriation of Assets
11
by directors
6
Ineffective or
10
nonexistent ethics or
8
compliance program
7
2003
1998
1994
Learning Objective 5
Develop responses to identified fraud risks.
Responding to the Risk of Fraud
11
11
Kickbacks
9
6
Financial reporting
7
fraud
3
2003
1998
Specific Fraud Risk Areas
Revenue and accounts receivable fraud risks Inventory fraud risks Purchases and accounts payable fraud risks Other areas of fraud risk
阿伦斯审计学：一种整合方法课后习题答案.docx
Chapter 1The Demand for Audit and Other Assurance ServicesReview Questions1-1The relationship among audit services,attestation services,and assurance services is reflected in Figure 1-3 on page 13 of the text. Anassurance service is an independent professional service to improve thequality of information for decision makers. An attestation service is aform of assurance service in which the CPA firm issues a report about the reliability of an assertion that is the responsibility of another party.Audit services are a form of attestation service in which the auditor expresses a written conclusion about the degree of correspondence between information and established criteria.The most commonform of audit service is an audit of historical financial statements, in which the auditor expresses a conclusion as towhether the financial statements are presented in conformity with generally accepted accounting principles.An example of an attestation service is a report on the effe ctiveness of an entity’s internal control over financial reporting.There are many possible forms of assurance services,including services related to business performance measurement, health care performance, and information system reliability.1-2An independent audit is a means of satisfying the need for reliable information on the part of decision makers.Factors of a complex society which contribute to this need are:1.Remoteness of informationa.Owners (stockholders) divorced from managementb.Directors not involved in day-to-day operations or decisionsc.Dispersion of the business among numerous geographiclocations and complex corporate structures2.Biases and motives of providerrmation will be biased in favor of the providerwhen his or her goals are inconsistent with thedecision maker's goals.3.Voluminous dataa.Possibly millions of transactions processed dailyvia sophisticated computerized systemsb.Multiple product linesc.Multiple transaction locationsplex exchange transactionsa.New and changing business relationships leadto innovative accounting and reporting problemsb.Potential impact of transactions not quantifiable, leading toincreased disclosures1-3 1. Risk-free interest rate This is approximately the rate the bank couldearn by investing in U.S. treasury notes for the same length of time asthe business loan.2.Business risk for the customer This risk reflects the possibility that thebusiness will not be able to repay itsloan because of economic or business conditions such as arecession,poor management decisions,or unexpectedcompetition in the industry.rmation risk This risk reflects the possibility thatthe information upon which the business risk decision was made wasinaccurate. A likely cause of the information risk is the possibility ofinaccurate financial statements.Auditing has no effect on either the risk-free interest rate or business risk.However, auditing can significantly reduce informationrisk.1-4The four primary causes of information risk are remoteness of information,biases and motives of the provider,voluminous data,and the existence of complex exchange transactions.The three main ways to reduce information risk are:er verifies the information.er shares the information risk with management.3.Audited financial statements are provided.The advantages and disadvantages of each are as follows:ADVANTAGES DISADVANTAGESUSER VERIFIES 1. User obtains information 1.High cost ofINFORMATION desired.obtaining2. User can be more information.confident of the 2.Inconvenience toqualifications and the personactivities of the person providing thegetting the rmation becauselarge number ofusers would be onpremises.USER SHARES 1.No audit costs incurred. INFORMATIONRISK WITHMANAGEMENT er may not beable to collecton losses.AUDITED 1.Multiple users obtain 1. May not meet needs FINANCIAL the information.of certain users. STATEMENTS ARE rmation risk can 2. Cost may be higher PROVIDED usually be reduced than the benefitssufficiently to satisfy in some situations,users at reasonable such as for a smallpany.3.Minimal inconvenience tomanagement by havingonly one auditor.1-5To do an audit, there must be information in a verifiable form and some standards( criteria)by which the auditor can evaluate the information. Examples of established criteria include generally acceptedaccounting principles and the Internal Revenue Code.Determining the degree of correspondence between information and established criteria is determining whether a given set of information is in accordance with theestablished criteria. The information for Jones Company's tax return isthe federal tax returns filed by the company. The established criteriaare found in the Internal Revenue Code and all interpretations. For theaudit of Jones Company's financial statements the information is the financial statements being audited and the established criteria are generally accepted accounting principles.1-6The primary evidence the internal revenue agent will use in the audit of the Jones Company's tax return include all available documentation and other information available in Jones' office or fromother sources.For example,when the internal revenue agent audits taxable income, a major source of information will be bank statements,the cash receipts journal and deposit slips. The internal revenue agentis likely to emphasize unrecorded receipts and revenues. For expenses,major sources of evidence are likely to be cancelled checks,vendors' invoices and other supporting documentation.1-7This apparent paradox arises from the distinction between the function of auditing and the function of accounting.The accounting function is the recording,classifying and summarizing of economic events to provide relevant information to decision makers. The rules ofaccounting are the criteria used by the auditor for evaluating the presentation of economic events for financial statements and he or shemust therefore have an understanding of generally accepted accounting principles(GAAP), as well as auditing standards.The accountant need not, and frequently does not, understand what auditors do, unless he orshe is involved in doing audits, or has been trained as an auditor.1-8OPERATIONAL COMPLIANCE AUDITS OF FINANCIALAUDITS AUDITS STATEMENTSPURPOSE To evaluate To determine To determinewhether whether the client whether theoperating is following overallprocedures are specific procedures financialefficient and set by higher statements areeffective authority presented inaccordance withspecifiedcriteria(usually GAAP) USERS OF Management of Authority setting Different groups AUDIT REPORT organization down procedures,for differentinternal or purposes — manyexternal outside entities NATURE Highly Not standardized,Highlynonstandard;but specific and standardizedoften usually objectivesubjectivePERFORMED BY:CPAsFrequently Occasionally AlmostuniversallyGAOFrequently Frequently Occasionally AUDITORSIRSNever Universally NeverAUDITORSINTERNALFrequently Frequently Frequently AUDITORS1-9 Five examples of specific operational audits that could be conducted by an internal auditor in a manufacturing company are:1.Examine employee time cards and personnel records to determine ifsufficient information is available to maximizethe effective use of personnel.2.Review the processing of sales invoices to determine ifit could be done more efficiently.3.Review the acquisitions of goods,including costs,todetermine if they are being purchased at the lowest possiblecost considering the quality needed.4.Review and evaluate the efficiency of the manufacturingprocess.5.Review the processing of cash receipts to determine ifthey are deposited as quickly as possible.1-10 When using a strategic systems auditing approach in an audit of historical financial statements,an auditor must have a thorough understanding of the client and its environment. This knowledge shouldinclude the client ’s regulatory and operating environment,business strategies and processes,and measurement indicators.The strategic systems approach is also useful in other assurance or consulting engagements. For example, an auditor who is performing an assurance service on information technology would need to understand the client’s business strategies and processes related to information technology, including such things as purchases and sales via the Internet. Similarly,a practitioner performing a consulting engagement to evaluate the efficiency and effectiveness of a cli ent ’s manufacturing process would likely start with an analysis of various measurement indicators, including ratio analysis and benchmarking against key competitors.1-11The major differences in the scope of audit responsibilities are:1.CPAs perform audits in accordance with auditing standards ofpublished financial statements prepared in accordance withgenerally accepted accounting principles.2.GAO auditors perform compliance or operational audits inorder to assure the Congress of the expenditure of publicfunds in accordance with its directives and the law.3.IRS agents perform compliance audits to enforce thefederal tax laws as defined by Congress, interpreted by thecourts, and regulated by the IRS.4.Internal auditors perform compliance or operational auditsin order to assure management or the board of directors thatcontrols and policies are properly and consistentlydeveloped, applied and evaluated.1-12 The four parts of the Uniform Attestation, Financial Accounting CPA Examinationand Reporting,are: AuditingRegulation,andandBusiness Environment and Concepts.1-13 It is important for CPAs to be knowledgeable about e-commerce technologies because more of their clients are rapidly expanding theiruse of e-commerce. Examples of commonly used e-commerce technologiesinclude purchases and sales of goods through the Internet,automatic inventory reordering via direct connection to inventory suppliers,and online banking.CPAs who perform audits or provide other assurance services about information generated with these technologies need a basic knowledge and understanding of information technology and e-commerce in order to identify and respond to risks in the financialand other information generated by these technologies.Multiple Choice Questions From CPA Examinations1-14 a.(3) b.(2) c.(2) d.(3)1-15 a.(2) b.(3) c.(4) d.(3)Discussion Questions And Problems1-16 a.The relationship among audit services, attestation servicesand assurance services is reflected in Figure 1-3 on page 13of the text.Audit services are a form of attestationservice,and attestation services are a form of assuranceservice. In a diagram, audit services are located within theattestation service area, and attestation services arelocated within the assurance service area.b. 1.(1)Audit of historical financial statements2.(2)An attestation service other than an auditservice; or(3)An assurance service that is not an attestationservice ( WebTrust developed from the AICPASpecial Committee on Assurance Services, but theservice meets the criteria for an attestation service.)3.(2)An attestation service other than an auditservice4.(2)An attestation service other than an auditservice5.(2)An attestation service other than an auditservice6.(2)An attestation service that is not an auditservice(Review services are a form ofattestation,but are performed according toStatements on Standards for Accounting andReview Services.)7.(2)An attestation service other than an auditservice8.(2)An attestation service other than an auditservice9.(3) An assurance service that is not an attestationservice1-17 a.The interest rate for the loan that requires a review reportis lower than the loan that did not require a review becauseof lower information risk. A review report provides moderateassurance to financial statement users,which lowersinformation risk. An audit report provides further assuranceand lower information risk.As a result of reducedinformation risk, the interest rate is lowest for the loanwith the audit report.b.Given these circumstances,Vial-tek should select the loanfrom City First Bank that requires an annual audit. In thissituation, the additional cost of the audit is less than thereduction in interest due to lower information risk.Thefollowing is the calculation of total costs for each loan:LENDERCPA COST OF CPA ANNUAL ANNUAL SERVICE SERVICES INTEREST LOAN COSTExisting loan None0$ 142,500$ 142,500 First National Review$ 12,000$ 127,500$ 139,500 BankCity First Bank Audit$ 20,000$ 112,500$ 132,5001-17 (continued)c.Vial-tek may desire to have an audit because of the manyother positive benefits that an audit provides.The auditwill provide Vial-tek ’s management with assurance aboutannual financial information used for decision-makingpurposes. The audit may detect errors or fraud, and providemanagement with information about the effectiveness ofcontrols.In addition,the audit may result inrecommendations to management that will improve efficiencyor effectiveness.d.Under a strategic systems audit approach,the auditor musthave a thorough understanding of the client and itsenvironment, including the client’s e -commerce technologies,industry,regulatory and operating environment,suppliers,customers, creditors, and business strategies and processes.This thorough analysis helps the auditor identify risksassociated with the client ’s strategies that may affectwhether the financial statements are fairly stated.Whenapplying the strategic systems audit approach,the auditoroften discovers ways to help the client improve businessoperations,thereby providing added value to the auditfunction.1-18 a.The services provided by Consumers Union are very similar toassurance services provided by CPA firms.The servicesprovided by Consumers Union and assurance services providedby CPA firms are designed to improve the quality ofinformation for decision makers.CPAs are valued for theirindependence,and the reports provided by Consumers Unionare valued because Consumers Union is independent of theproducts tested.b.The concepts of information risk for the buyer of anautomobile and for the user of financial statements areessentially the same.They are both concerned with theproblem of unreliable information being provided.In thecase of the auditor, the user is concerned about unreliableinformation being provided in the financial statements. Thebuyer of an automobile is likely to be concerned about themanufacturer or dealer providing unreliable information.c.The four causes of information risk are essentially the samefor a buyer of an automobile and a user of financialstatements:(1)Remoteness of information It is difficult for a userto obtain much information about either an automobilemanufacturer or the automobile itself withoutincurring considerable cost. The automobile buyer doeshave the advantage of possibly knowing other users whoare satisfied or dissatisfied with a similar automobile.(2)Biases and motives of provider There is a conflictbetween the automobile buyer and the manufacturer. Thebuyer wants to buy a high quality product at minimumcost whereas the seller wants to maximize the sellingprice and quantity sold.(3)Voluminous data There is a large amount of availableinformation about automobiles that users might like tohave in order to evaluate an automobile.Either that information is not available or too costly to obtain.1-18(continued)(4)Complex exchange transactions The acquisition of anautomobile is expensive and certainly a complexdecision because of all the components that go intomaking a good automobile and choosing between a largenumber of alternatives.d. The three ways users of financial statements and buyers ofautomobiles reduce information risk are also similar:(1)User verifies information him or herself That can beobtained by driving different automobiles,examiningthe specifications of the automobiles,talking toother users and doing research in various magazines.(2)User shares information risk with management The manufacturerof a product has a responsibility to meetits warranties and to provide a reasonable product.The buyer of an automobile can return the automobilefor correction of defects. In some cases a refund maybe obtained.(3)Examine the information prepared by Consumer ReportsThis is similar to an audit in the sense thatindependent information is provided by an independentparty. The information provided by Consumer Reports iscomparable to that provided by a CPA firm that auditedfinancial statements.1-19 a. The following parts of the definition of auditing are relatedto the narrative:(1)Virms is being asked to issue a report aboutqualitative and quantitative information for trucks.The trucks are therefore the information with whichthe auditor is concerned.(2)There are four established criteria which must beevaluated and reported by Virms:existence of thetrucks on the night of June30, 2005,ownership ofeach truck by Regional Delivery Service,physicalcondition of each truck and fair market value of eachtruck.(3)Susan Virms will four types ofaccumulate and evaluateevidence :(a)Count the trucks to determine their existence.(b)Use registrations documents held by Oatley forcomparison to the serial number on each truck todetermine ownership.(c)Examine the trucks to determine each truck's physicalcondition.(d)Examine the blue book to determine the fair marketvalue of each truck.(4)Susan Virms,CPA, appears qualified,as a competent,independent person. She is a CPA, and she spends mostof her time auditing used automobile and truck dealerships and has extensive specialized knowledge about used trucks that is consistent with the nature of the engagement.1-19(continued)(5)The report results are to include:(a)which of the 35 trucks are parked in Regional'sparking lot the night of June 30.(b)whether all of the trucks are owned byRegional Delivery Service.(c)the condition of each truck, using establishedguidelines.(d)fair market value of each truck using the current bluebook for trucks.b.The only parts of the audit that will be difficult forVirms are:(1)Evaluating the condition, using the guidelines of poor,good, and excellent. It is highly subjective to do so.If she uses a different criterion than the"bluebook,"the fair market value will not be meaningful.Her experience will be essential in using thisguideline.(2)Determining the fair market value,unless it isclearly defined in the blue book for each condition.1-20 a. The major advantages and disadvantages of a career as an IRS agent, CPA, GAO auditor, or an internal auditor are:EMPLOYMENT ADVANTAGES DISADVANTAGESINTERNAL 1.Extensive training in 1.Experience limited to REVENUE individual, corporate,taxes.AGENT gift, trust and other 2.No experience withtaxes is available with operational or financialconcentration in area statement auditing.chosen. 3.Training is not2.Hands-on experience with extensive with anysophisticated selection business enterprise.techniques.CPA 1.Extensive training in 1. Exposure to taxes and toaudit of financial the business enterprisestatements, compliance may not be as in-depthauditing and operational as the internal revenueauditing.agent or the internal2.Opportunity for auditor.experience in auditing, 2. Likely to be lesstax consulting, and exposed to operationalmanagement consulting auditing than is likelypractices.for internal auditors.3.Experience in a diversityof enterprises andindustries with theopportunity to specializein a specific industry.GAO AUDITOR 1.Increasing opportunity 1.Little exposure tofor experience in diversity of enterprisesoperational auditing.and industries.2.Exposure to highly 2.Bureaucracy of federalsophisticated statistical government.sampling and computerauditing techniques.1-20(continued)EMPLOYMENT ADVANTAGESINTERNAL 1.Extensive exposure to all AUDITOR segments of theenterprise with whichemployed.2.Constant exposure to oneindustry presentingopportunity for expertisein that industry.3.Likely to have exposureto compliance, financialand operational auditing.DISADVANTAGES1.Little exposure totaxation and theaudit thereof.2.Experience is limited toone enterprise, usuallywithin one or a limitednumber of industries.(b)Other auditing careers that are available are:Auditors within many of the branches of the federalgovernment ., Atomic Energy Commission)Auditors for many state and local government units .,state insurance or bank auditors)1-21 The most likely type of auditor and the type of audit for each ofthe examples are:EXAMPLE TYPE OF AUDITOR TYPE OF AUDITIRS Compliance1.GAO OperationalInternal auditor or CPA Operational2.CPA or Internal auditor Financial statementsGAO Operational3.CPA Financial statementsGAO Financial statements4.IRS ComplianceCPA Financial statements5.Internal auditor or CPA ComplianceInternal auditor or CPA Financial statements6.GAO Compliance7.8.9.10.11.12.1-22 a.The conglomerate should either engage the management advisory services division of a CPA firm or its own internalauditors to conduct the operational audit.b.The auditors will encounter problems in establishingcriteria for evaluating the actual quantitative events andin setting the scope to include all operations in whichsignificant inefficiencies might exist.In writing thereport,the auditors must choose proper wording to statethat no financial audit was performed,that the procedureswere limited in scope and that the results reported do notnecessarily include all the inefficiencies that might exist.1-23 a.The CPA firm for the Internet company described in this problem could address these customer concerns by performinga WebTrust attestation engagement.The WebTrust assuranceservice was created by the profession to respond to thegrowing need for assurance resulting from the growth ofbusiness transacted over the Internet.b.The appropriate WebTrust principle for each of the customerconcerns noted in the problem is as follows:1.Accuracy of product descriptions and adherence tostated return policies: (3) Processing Integrity.2.Credit card and other personal information: (1)Online Privacy and (2) Security.3.Selling information to other companies: (1) Online Privacy and(2) Security.4.System failure: (4) Availability.Internet Problem Solution: Assurance Services1-1 This problem requires students to work with the AICPA assurance services Web site.1.Considering the assurance needs of customers and thecapabilities of CPAs, the Special Committee on AssuranceServices developed business plans for six assurance services.Chapter 1of the textbook discussed several of theseservices.Go to the service description for the assuranceservice that most interests you (any one of the six). Whatare the major aspects or sections of the associatedbusiness plan ., does the plan address market potential,competition, etc.?)Answer: Each business plan provides background information,describes the service, assesses market potential, discussesissues such as competition and why CPAs should offer the service,identifies practice tools available and steps that CPAs must take tobegin offering the services.2.The Special Committee's report on Assurance Services discussescompetencies needed by assurance providers todayand in the coming decade.Briefly describe the 5 generalcompetencies needed in the next decade (Hint:See the“About Assurance Services ”link.Then follow the“Assurance Services and Academia” link.)Answer: The Committee identified the following five imperatives regarding future competencies, each of implies increasing emphasis on the competencies noted:major which1-1(continued)Customer focus .Assurance service providers need tounderstand user decision processes and how informationshould enter into those processes.Increased emphasis isneeded on:understanding user needs,communication skills,relationship management, responsiveness and timeliness.Migration to higher value-added information activities.Toprovide more value to client/decision makers and others,assurance service providers need to focus less on activitiesinvolved in the conversion of business events intoinformation.,collecting,classifying,and summarizingactivities)and more on activities involved in thetransformation of information into knowledge .,analyzing,interpreting,and evaluating activities)that effectivelydrives decision processes.This will require:analyticalskills, business advisory skills, business knowledge, modelbuilding (including sensitivity analysis), understanding theclient’s business processes,measurement theory(development of operational definitions of concepts, designof appropriate measurement techniques, etc.).Information technology(IT).Assurance services deal ininformation.Hence,the profound changes occurring ininformation technology will shape virtually all aspects ofassurance services.As information specialists,assuranceservice providers need to embrace information technology inall of its complex dimensions.Embracing IT meansunderstanding how it is transforming all aspects of business.It also means learning how to effectively use newdevelopments in hardware, software, communications, memory,encryption, etc., in everything assurance service providersdo as information specialists,not only in dealing withclients, but also in dealing with each other as individuals,teams,firms,state societies,and national professionalorganizations.Pace of change and complexity.Assurance services will takeplace in an environment of rapid change and increasingcomplexity.Assurance service providers need to investheavily in life-long learning in order to maintain up-to-date knowledge and skills.They will require:intellectualcapability, learning and rejuvenation.Competition.Growth in new assurance services will dependless on franchise/regulation and more on market forces.Assurance service providers need to develop their marketingskills—the ability to see clients ’ latent informationand assurance needs and rapidly design and deploy cost-effective services to meet those needs—in order toeffectively compete for market-driven assurance services.Required skills include:marketing and selling,understanding customer needs,designing and deployingeffective solutions.1-1(continued)( Note: Internet problems address current issues using Internet Because Internet sites are subject to change, Internet problems and solutionsare subject to change.Current information on Internet problems is atsources. available。
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Phase III
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Relationship Between Sales and Accounts Receivable
Completeness Classification Detail tie-in
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Analytical Procedures for the Sales and Collection Cycle
Compare by product line: Gross margin percentage with previous years Sales by month over time Sales returns and allowances as a percentage of gross sales with previous years
Analytical Procedures: Sales and Collection Cycle
12/31/07 12/31/06 12/31/05 Gross margin/net sales Sales returns and allowances/ gross sales Bad debt expense/net sales Allowance for uncollectible accounts/accounts receivable Number of days receivables outstanding Net accounts receivable/ current assets 27.85% 27.70% 27.68%
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Cutoff
Learning Objective 2
Design and perform analytical procedures for accounts in the sales and collection cycle.
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
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Methodology for Designing Tests of Details of Balances for A/R
Design and perform analytical procedures Phase III for accounts receivable balance Design tests of Audit procedures details of accounts Sample size receivable balance to satisfy Items to select balance-related Timing audit objectives
பைடு நூலகம் Days that accounts receivable are outstanding
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
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Analytical Procedures for the Sales and Collection Cycle
7.0 7.0 14.1 7.3 6.6 8.0 39.0 5.7 6.7
123,737 33,961 16,505 3,162 41,989 61,147 3,351 209 30
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©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
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Design and Perform Tests of Details of A/R Balance (Phase III)
Planned detection risk for each objective is an auditor decision Combining the factors that determine planned detection risk is complex
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Selected Comparative Information
Percent Percent change change 12/31/07 2006- 12/31/06 2005($000) 2007 ($000) 2006
12/31/05 ($000)
Sales Gross margin Accounts receivable Bad debt expense Total current assets Total assets Net earnings Number of accounts receivable Number of accts. rec. with balances over $100,000
144,328 39,845 20,197 3,323 51,027 61,367 5,681 258 37
9.0 9.6 7.3 (2.1) 14.0 (7.0) 21.9 16.7 15.6
132,421 36,350 18,827 3,394 44,779 66,021 4,659 221 32
Compare with previous years: Aging category as a percentage of receivables Allowance for uncollectible accounts as a percentage of accounts receivable
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Learning Objective 1
Describe the methodology for designing tests of details of balances using the audit risk model.
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
0.90% 2.30%
6.10% 48.09 37.20%
0.90% 2.60%
7.50% 47.96 32.50%
0.90% 2.60%
6.40% 49.32 32.30%
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
Completeness Classification Detail tie-in
ACCOUNTS RECEIVABLE BALANCE-RELATED AUDIT OBJECTIVES Translation-related audit objectives
Realizable value
Existence
ACCOUNTS RECEIVABLE BALANCE-RELATED AUDIT OBJECTIVES Translation-related audit objectives
Realizable value
Existence
Accuracy
Sales Occurrence Completeness Accuracy Posting and summarization Classification Timing
Accuracy
Cash receipts Occurrence Completeness Accuracy Posting and summarization Classification Timing
× × × × × ×
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©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
Completing the Tests in the Sales and Collection Cycle: Accounts Receivable
Chapter 16
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
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Methodology for Designing Tests of Details of Balances for A/R
Identify client business risks affecting accounts receivable Phase I
Methodology for Designing Tests of Details of Balances for A/R
Design and perform tests of controls and substantive tests Phase II of transactions for the sales and collection cycle
× × × × × ×
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©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
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