Ch.+4+Slides+_Day+4_ - MANAGEMENT FRAUD AND AUDIT RISK...

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MANAGEMENT FRAUD AND AUDIT RISK CHAPTER 4
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QUIZ!
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SUBSTANTIVE AUDIT PROCEDURES (AUDITOR’S TOOL BELT) 1. Inspection of records and documents 2. Inspection of tangible assets 3. Observation 4. Inquiry 5. Confirmation 6. Recalculation 7. Reperformance 8. Analytical Procedures 3-4
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VOUCHING / TRACING Summary Listing [Sales Journal] Source Documents [Shipping documents] Q: Did all recorded sales actually occur? Q: Were all sales recorded? Vouching (Existence or Occurrence) Tracing (Completeness)
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SUBSTANTIVE AUDIT PROCEDURES (AUDITOR’S TOOL BELT) 1. Inspection of records and documents 2. Inspection of tangible assets 3. Observation 4. Inquiry 5. Confirmation 6. Recalculation 7. Reperformance 8. Analytical Procedures 3-6
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ANALYTIC PROCEDURE STEPS 1. Develop an expectation. 2. Define a significant difference. 3. Calculate predictions and compare them with the recorded amount. 4. Investigate significant differences. 5. Document each of the above steps. 4-7
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ANALYTICAL PROCEDURE EXAMPLES Auditors noticed large quantities of rolled steel in the company's inventory. Several 60,000-pound rolls were entered in the inventory list. The false entries were detected because the auditor knew the company's forklift trucks had a 20,000 pound lifting capacity. Auditors compared the total quantity of vegetable oils the company claimed to have inventoried in its tanks to the storage capacity reported in national export statistics. The company's "quantity on hand" amounted to 90 percent of the national supply and greatly exceeded its own tank capacity. Auditors developed a complex regression model to estimate the electric utility company's total revenue. They used empirical relations of fuel consumption, meteorological reports of weather conditions, and population census data in the area. The regression model estimated revenue within close range of the reported revenue Auditors for a small regional airline calculated an estimate of airline revenue by multiplying the number of company planes times an estimate of the # of flights made by each plane in a year times the number of seats on each plane times an estimate of the average ticket price. The revenue reported by the airline was significantly higher than the auditors' estimate.
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ANALYTIC PROCEDURES: STAGES OF USE Preliminary planning -- required Substantive testing -- optional Final review -- required 4-9
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STAGES OF AN AUDIT Obtain (or Retain) Engagement Engagement Planning Risk Assessment Audit Evidence Reporting
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PLANNING ANALYTICAL PROCEDURES Dunder-Mifflin, Inc. Handout
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