Auditing Ch 4 - AUDITING ATTESTATION 4 TIP PIE ACDO =...

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Becker Auditing – 2008 Edition Chapter 4 1 AUDITING & ATTESTATION – 4 TIP PI E ACDO = Evidence Review: Strong Internal Control P – Pre-numbered Documents A – Authorization of Transactions I – Independent Checks D – Documentation T – Timely and Appropriate Performance Reviews I – Information Processing Controls P – Physical Controls S – Segregation of Duties Management Assertions: C – Completeness P – Proper period cut-off A – Accuracy C – Classification O – Occurrence C – Completeness A – Allocation and Valuation R – Rights and Obligations E – Existence About C – Completeness U – Understandability and Classification R – Rights, Obligations, and Occurrence V – Valuation and accuracy ed assertions Substantive Testing: N – Nature E – Extent T – Timing Transaction Cycles: Cycle: Description 1. Revenue: includes sales revenues, receivables, and cash receipts 2. Expenditure: Includes purchases, payables, and cash disbursements 3. Payroll and Personnel: Includes payroll (salaried and hourly) and personnel functions 4. Inventory and Production: Includes perpetual inventory, physical counts, and manufacturing costs 5. Property, Plant, and Equipment: includes acquisitions and disposals and related depreciation expense 6. Investments: includes investments, related interest and dividend payments, proceeds from issuance and from payments of principal, and payments for treasury stock 7. Other Liabilities: includes accrued liabilities, warranty costs, deferred income taxes, and lease obligations Revenue Cycle: includes sales revenues, receivables, and cash receipts Vouch down barb2right Biggest concern is overstatement of revenue. Sales checkbld Preparation of the Sales Order: P aid Tips (Pre-numbered) 1) Receipt of a customer purchase order by the sales department 2) A serially numbered sales order is prepared and sent to the credit department for approval checkbld Credit Approval: Valuation assertion and Authority 1) Decides if the customer may receive goods on open account = Authority 2) If approved, copy of approved sales order is sent to shipping department, billing department, and the accounting department checkbld Shipment: Custody
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Becker Auditing – 2008 Edition Chapter 4 2 1) Serially numbered bill of lading is prepared and copy is sent to customer 2) Goods are shipped and receivable arises checkbld Billing: Recordkeeping 1) Prepares serially numbered sales invoice 2) Shipping documents, sales orders, and invoices are compared to assure that all shipments were based on valid customer orders and properly billed 3) Prices and discounts are applied to the invoice, and extensions and footings are computed 4) Invoice is sent to customer and accounts receivable department checkbld Accounting: Recordkeeping 1) Sale is entered into sales journal, and receivable is recorded Accounts Receivable checkbld Sales 1) Receivable is recorded in the A/R control account in the general ledger and in A/R subsidiary ledger 2) Periodically, an independent person should reconcile these two records
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