WHAT’S NEXT...?!! 2 WEEKS & FINAL EXAM!!!!!!

FINAL EXAM  TWO OF FOUR ESSAYS 200  TEN MULTIPLE CHOICE 100

COMPREHENSIVE ESSAY  AUDIT THEME  RELATE AUDIT PHASES  AUDIT FINDINGS

COMPREHENSIVE ESSAY 4 AUDIT PROCESS HANDOUT SIX PHASES ACTIVITIESPRODUCTS

SECOND ESSAY  1 OF OTHER 3 QUESTIONS  ONLY RECENT STUFF  AUDIT REPORTS  ALL BUT ONLY

ONLY RECENT STUFF  CASH  ACCOUNTS RECEIVABLE  ACCOUNTS PAYABLE  EXPENSES/CUTOFFS  INVENTORY  FIXED ASSETS

ONLY RECENT STUFF / SUBSTANTIVE TESTS OF BALANCES / WRAP-UP PHASE - SEARCH FOR UL & SSE - SEARCH FOR UL & SSE - SUMMARIZE & CONCLUDE - PJE - SUMMARIZE & CONCLUDE - PJE / ISSUE REPORT

EXPENDITURE CYCLE MIRROR OF THE REVENUE CYCLE

EXPENDITURE CYCLE l PREPAID EXPENSES l ACCOUNTS PAYABLE & ACCRUED LIABILITIES l EXPENSE ACCOUNTS

ACCOUNTS PAYABLE & ACCRUED LIABILITIES l LIABILITIES - FOCUS ON UNDERSTATEMENT FOCUS ON UNDERSTATEMENT

WORKPAPER SCHEME BSL AA LEAD AA-1 A/P T/B AA-2 A/L ANALYSIS AA-1/1 CONFIRMS AA-1/2 SEARCH FOR U/L

ACCOUNTS PAYABLE & ACCRUED LIABILITIES l TRIAL BALANCE OF A/P l X-REF TO LEAD l FOOT l ALL & ONLY TEST TO/FROM A/P SUBSIDIARY LEDGER

WORKPAPER SCHEME BSL AA LEAD AA-1 A/P T/B AA-2 A/L ANALYSIS AA-1/1 CONFIRMS AA-1/2 SEARCH FOR U/L

CONFIRMATION OF A/P l SELECT SAMPLE l MAIL 1st & 2nd REQUESTS l NONREPLIES l TOTAL ERRORS IN SAMPLE l EXPLODE TO POPULATION

SELECTING SAMPLE l BLIND REQUESTS l ZERO BALANCE ACCOUNTS l MAJOR SUPPLIERS

VOUCHING A/P l VOUCHING - Examine documents supporting a payable or disbursement

VOUCHING A/P l VENDOR’S INVOICE l BILL OF LADING & PACKING LIST l RECEIVING DOCUMENTS l PURCHASE ORDER l CHECK REQUEST

SEARCH FOR UNRECORDED PAYABLES PART OF WRAP UP PHASE & A CUTOFF TEST

SEARCH FOR UNRECORDED PAYABLES l EXAMINE SUBSEQUENT C/D OVER A $ SCOPE l LIST C/D RELATED TO Y/E l TRACE TO RECORDED A/P l TOTAL UNRECORDED A/P l PROPOSE JOURNAL ENTRY

SEARCH FOR UNRECORDED PAYABLES l CONTINUES THRU LAST DAY OF FIELD WORK l GRADUATED SCOPE

AUDITING EXPENSES AUDITING BY EXCEPTION

ALREADY PERFORMED? l UNDERSTANDING CLIENT l ASSESS INTERNAL CONTROL l TEST CONTROL TECHNIQUES l SUBSTANTIVE TESTS l TESTS OF Y/E A/P

ALREADY PERFORMED? l WAGE & SALARY EXPENSE - Payroll cycle audit l DEPRECIATION EXPENSE - Audit of Fixed Assets l INTEREST EXPENSE - Audit of Loans Payable l COST OF GOODS SOLD - Audit of Inventory & Sales

AUDIT BY EXCEPTION l DO ANALYTICAL REVIEW l FOR UNUSUAL VARIATIONS, DO ADDITIONAL WORK - - Reasonable Business Explanation - Error and PJE l NO UNUSUAL VARIATIONS, STOP

AUDIT EXPENSES l SOME HIGH RISK EXPENSES ARE ALWAYS ANALYZED - - Travel & Entertainment - Travel & Entertainment - Legal & Professional Fees - Legal & Professional Fees - Donations - Donations - Repairs & Maintenance - Repairs & Maintenance

PRODUCTION CYCLE l INVENTORY l FIXED ASSETS

PHYSICAL COUNT l COUNT l COMPILATION (VALUATION) (VALUATION) l BOOK-TO-PHYSICAL ADJUSTMENT ADJUSTMENT

COUNT - CLIENT MUST DO l BEFORE THE COUNT -  Housecleaning  Disposal of damaged/obsolete goods  Close shipping/receiving & production around Y/E production around Y/E  Written count plan/instructions  Preprinted count tags or lis (Blind or prepared media?)  Count team meeting

COUNT - CLIENT MUST DO l DURING THE COUNT  Assigning teams to segregate duties  Assigning recounters & supervisors  Maintaining count tag control  Count & recount  Resolving counting problems  Shipping & receiving during count  Review for completeness  Collect & account for all tags  Complete count tag control

COMPILATION - CLIENT MUST DO l AFTER THE COUNT  Sort & accumulate count tags  Transcribe counts from tags to medium  Adjust counts for in-transit items  Price items using FIFO or LIFO  Apply Lower-of-cost-or-market to items  Extend and foot inventory  Record book-to-physical adjustments

BOOK-TO-PHYSICAL - CLIENT MUST DO l CALCULATE ADJUSTMENT l RECORD ADJUSTMENT

COUNT - AUDITOR MUST DO l BEFORE THE COUNT -  Review count plan  Pre-count tour of facilities  Identify most valuable items  Attend count team meeting  Assure shipping/receiving & production are closed

COUNT - AUDITOR MUST DO l DURING THE COUNT -  Observe counters  Do test counts  Observe handling of count problems  Observe count tag control process  Observe rust, dust & dents  Obtain shipping/receiving cutoff samples  Count high value items  Calculate rough estimate of total inventory  Review for completeness  Observe collection of & accounting for tags

COMPILATION - AUDITOR MUST DO l AFTER THE COUNT  Do all & only tests for tags  Tie in counts of high value items  Test pricing  Test lower-of-cost-or-market  Check extensions & footings

BOOK-TO-PHYSICAL ADJUSTMENT - AUDITOR MUST DO l CHECK CALCULATION l CHECK POSTING

SHIPPING/RECEIVING CUTOFF TESTS  Sample of last shipping/receiving documents before y/e  Sample of first shipping/receiving documents after y/e  Trace shipments to sales recorded in Sales Journals  Trace receipts of goods to purchases recorded in Purchases Journals  Consider effect of FOB shipping terms  Propose adjustment for any errors in cutoff

CUTOFFS SEE PROBLEM ON PAGE 662

AUDIT OF FIXED ASSETS l Differences from audit of receivables & inventory l Focus on current activity – not whole balance l Fewer transactions l Large, complex transactions l Peripheral costs l Financing affects value recorded l Liens on assets l Physical existence

AUDIT OF FIXED ASSETS l Vouching sample of additions l Capitalize v. Expense l Tests of depreciation l Tax basis as well as book basis significant l Auditing sample of disposals l Gain/Loss on disposal l Trade-ins v. sales l Periodic physical counts & unrecorded disposals l Impairments in value