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ACCT 107 Lecture Notes - Lecture 9: Audit Evidence, General Ledger, Trial Balance

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beigewhale811
6 Oct 2020
School
American River College
Department
Accounting
Course
ACCT 107
Professor
Dr.Charles“ Kale” Braden

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Document Summary

Designed to show the activity in a general ledger account during the entire period under audit. Consists of the details that make up a year-end balance or a general ledger account. Supports a specific amount and is normally expected to tie the amount recorded in the client"s records to another source of info. Contain information that enables the auditor to evaluate whether the client"s balance appears to include a misstatement considering the circumstances in the engagement. Another type of schedule that summarizes the results of a specific audit procedure. A number of special purpose schedules are designed to show detailed tests performed, such documents examined during tests of controls and substantive tests of transactions. Contains information as opposed to audit evidence. Represents evidence gathered by auditor from outside parties such as confirmation replies and copies of client agreements. Audit evidence is increasingly in electronic form. Auditors must evaluate how electronic information affects their ability to gather.

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Related Questions

Management assertions for the financial statements referenced inPCAOB Auditing Standards are:

Existence, occurrence

Completeness

Rights, obligations

Valuation, allocation

Presentation and disclosure

The purpose of tests of controls is to permit the auditor toassess whether properly designed controls operate effectivelyenough to prevent or detect material misstatements that would makethese managements assertions wrong.

Required:

For each of the following audit procedures identify whether theprocedure is:

(a) directed at a control or at an amount ordisclosure, or both, and

(b) what assertion (or assertions) is (are)targeted.

Accounts, Classes of Transactions

Audit Procedure

Directed at:

Assertion:

All

Inquire who controls passwords for IT access.

Sales, Receivables, Inventory

Examine document packages for items that have been shipped forinclusion of a customer order, credit approval, and shippingdocument. Make sure the documents are properly matched andcomplete, with all required signatures and trace amounts to thesales journal, accounts receivable subsidiary ledger, and inventoryfiles.

Payroll

For the Hourly Payroll Expense account, multiply the averagenumber of workers times the average number of hours worked per yeartimes the average hourly rate. Compare to the total posted annualamount.

Cash

Inspect the client-prepared bank reconciliation for each monthof the year, recalculate the amounts, examine the supporting bankstatements, and trace the cash amount to the general ledger.

Fixed assets

Obtain a list of fixed assets and physically look at theassets.

Long-term debt

Read the contract related to each of the company’s long-termborrowings and agree the terms of the contracts to the financialstatements notes.

Cash, Long-term debt

For each item of long-term debt that existed both at thebeginning and end of the year, inspect the debt contracts and thecompany’s analysis of the discounted debt amount and its analysisof violation of debt covenants and look for whether the detailsagree. Recalculate the amounts, and examine recorded entries andbank statements for cash disbursements for debt repayments. Usingthat information, determine whether the company has been inviolation of any debt covenants during the year.

Prepaid rent

Using the beginning financial statement amount, cash receiptsand cash disbursements evidence, and the lease agreement, calculateyear-end prepaid rent and agree that amount to what is shown in thegeneral ledger.

Inventory

At the end of the last day in the fiscal year, go to theclient’s shipping area and record the last shipment; trace theshipment into the client’s

Management assertions for the financial statements referenced inPCAOB Auditing Standards are:

Existence, occurrence

Completeness

Rights, obligations

Valuation, allocation

Presentation and disclosure

The purpose of tests of controls is to permit the auditor toassess whether properly designed controls operate effectivelyenough to prevent or detect material misstatements that would makethese managements assertions wrong.

Required:

For each of the following audit procedures identify whether theprocedure is:

(a) directed at a control or at an amount ordisclosure, or both, and

(b) what assertion (or assertions) is (are)targeted.

Accounts, Classes of Transactions

Audit Procedure

Directed at:

Assertion:

All

Inquire who controls passwords for IT access.

Sales, Receivables, Inventory

Examine document packages for items that have been shipped forinclusion of a customer order, credit approval, and shippingdocument. Make sure the documents are properly matched andcomplete, with all required signatures and trace amounts to thesales journal, accounts receivable subsidiary ledger, and inventoryfiles.

Payroll

For the Hourly Payroll Expense account, multiply the averagenumber of workers times the average number of hours worked per yeartimes the average hourly rate. Compare to the total posted annualamount.

Cash

Inspect the client-prepared bank reconciliation for each monthof the year, recalculate the amounts, examine the supporting bankstatements, and trace the cash amount to the general ledger.

Fixed assets

Obtain a list of fixed assets and physically look at theassets.

Long-term debt

Read the contract related to each of the company’s long-termborrowings and agree the terms of the contracts to the financialstatements notes.

Cash, Long-term debt

For each item of long-term debt that existed both at thebeginning and end of the year, inspect the debt contracts and thecompany’s analysis of the discounted debt amount and its analysisof violation of debt covenants and look for whether the detailsagree. Recalculate the amounts, and examine recorded entries andbank statements for cash disbursements for debt repayments. Usingthat information, determine whether the company has been inviolation of any debt covenants during the year.

Prepaid rent

Using the beginning financial statement amount, cash receiptsand cash disbursements evidence, and the lease agreement, calculateyear-end prepaid rent and agree that amount to what is shown in thegeneral ledger.

Inventory

At the end of the last day in the fiscal year, go to theclient’s shipping area and record the last shipment; trace theshipment into the client’s records.

Management assertions for the financial statements referenced inPCAOB Auditing Standards are:

Existence, occurrence

Completeness

Rights, obligations

Valuation, allocation

Presentation and disclosure

The purpose of tests of controls is to permit the auditor toassess whether properly designed controls operate effectivelyenough to prevent or detect material misstatements that would makethese managements assertions wrong.

Required:

For each of the following audit procedures identify whether theprocedure is:

(a) directed at a control or at an amount ordisclosure, or both, and

(b) what assertion (or assertions) is (are)targeted.

Accounts, Classes of Transactions

Audit Procedure

Directed at:

Assertion:

All

Inquire who controls passwords for IT access.

Sales, Receivables, Inventory

Examine document packages for items that have been shipped forinclusion of a customer order, credit approval, and shippingdocument. Make sure the documents are properly matched andcomplete, with all required signatures and trace amounts to thesales journal, accounts receivable subsidiary ledger, and inventoryfiles.

Payroll

For the Hourly Payroll Expense account, multiply the averagenumber of workers times the average number of hours worked per yeartimes the average hourly rate. Compare to the total posted annualamount.

Cash

Inspect the client-prepared bank reconciliation for each monthof the year, recalculate the amounts, examine the supporting bankstatements, and trace the cash amount to the general ledger.

Fixed assets

Obtain a list of fixed assets and physically look at theassets.

Long-term debt

Read the contract related to each of the company’s long-termborrowings and agree the terms of the contracts to the financialstatements notes.

Cash, Long-term debt

For each item of long-term debt that existed both at thebeginning and end of the year, inspect the debt contracts and thecompany’s analysis of the discounted debt amount and its analysisof violation of debt covenants and look for whether the detailsagree. Recalculate the amounts, and examine recorded entries andbank statements for cash disbursements for debt repayments. Usingthat information, determine whether the company has been inviolation of any debt covenants during the year.

Prepaid rent

Using the beginning financial statement amount, cash receiptsand cash disbursements evidence, and the lease agreement, calculateyear-end prepaid rent and agree that amount to what is shown in thegeneral ledger.

Inventory

At the end of the last day in the fiscal year, go to theclient’s shipping area and record the last shipment; trace theshipment into the client’s records.