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MGMT 138 Study Guide - Quiz Guide: Paten, Going Concern, Social Forces

Course Code
MGMT 138
Patricia Wellmeyer
Study Guide

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138 quiz 2 review
1. Risk Assessment
a. uderstad the liet’s eiroet, internal control and perform Preliminary (risk
assessment type) analytical procedures.
2. Substantive Testing of Financial Information
a. Substantive (testing type) analytical procedure; Tests of transactions, accounts,
presentation and disclosure.
3. Yield Evidence:
a. Confirmation: fro the liet’s liet; third party representation; accounts receivables; test
more existence; use the bank to confirm the bank loans or the cash existence;
b. Inspections:
i. vouching (making sure what stated is truthful)->existence and occurrence; invoices,
shipping documents, purchase orders.
ii. Tracing -> open invoice tracing test the leger -> testing completeness
c. A reconciling item is a difference between balances from two sources that are being
compared. These items are stated in an account reconciliation, so that the balance from one
source is adjusted by reconciling items to arrive at the balance from the other source.
d. Observation; Recalculation and re-performance; Client inquiry.
e. Analysis (Analytical Procedures): .
i. Comparison of client ratios to industry or competitorbenchmarks provides an
idiatio of the opa’s performance. Preliminary tests can reveal unusual
changes in accounts and/or ratios and can help direct planning.
ii. Cash->Existence-> Recalculation of the bank reconciliation; get a letter from bank
confirmation; testing reconciling items ->[recalculation, confirmation, inspection of
documents- vouching]
iii. Inventory-> valuation -> observe the physical count; three-way match of the unit
cost on the purchase orders, shipping documents and the invoices from the other
party; turnover analysis and branch marking, replacement cost to analyze the market
value-> [observation, inspection of documents, analytical procedures]
iv. Account receivables -> Existence/ Valuation -> confirm reeiales ith liet’s
clients; subsequent cash receipts-> [confirmation, inspection of documents -
v. Account Payables-> Completeness -> open invoice search -> [inspection of
documents tracing, Analytical Procedures]
vi. Revenues -> cutoff -> three way match of purchase orders, shipping documents and
invoices 5 days before or after year end ->[inspection of documents]
4. Audit Opinions
a. Unqualified - stateets preset fairl
b. Reservation of opinion (three types)
i. Qualified - Eept for oe or more eeptios, stateets preset fairl.
ii. Adverse - “tateets do not preset fairl.
iii. Denial/Disclaimer - No opiio.
5. Possible Auditor Reports on Internal Control over Financial Reporting
a. No material weakness: unqualified
b. Material weakness: inefficient/ adverse
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