L10 Notes_Part_11 - Improperly capitalizing the cost of...

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Why Focus on the Balance Sheet? Relative costs of tests Why focus on balance sheet account A/R instead of Sales? In general, why do we concentrate on the balance sheet rather than the income statement? Magic equation Beg. Bal. + Addn’s – Subtractions = End. Bal. Stocks v. Flows Equation End Bal – Beg Bal = Addn’s –Subtractions Since they are equal verifying one side proves the credibility of the balance of the other side. Consequently, we needn’t audit both sides but can emphasize one and do less testing of the other. 1. Few B/S accts; many expense accounts 2. If you audited last year's B/S properly and this year's B/S is accurate then the bottom line must be correct. Pitfalls? 3. Next year's B/S will be correct. Generally, if you are uncertain about where a debit or credit goes IS or BS flush it down the P & L because it only makes one year's statement incorrect.
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Unformatted text preview: Improperly capitalizing the cost of putting an asset in use affects all F/Ss while the asset is owned. 4. Overstatements of Sales will show up in A/R. 5. Easier to audit, fewer transactions in ending balance 1. Confirm Account Payable 2. Do tests of controls and substantive tests of transaction for the Human Resource Business process 3. Do other tests of details of balances for A/P 4. Do tests for review of subsequent events 5. Accept the client 6. Issue the audit report 7. Understand internal control and assess control risk 8. Do analytical procedures for A/P 9. Set acceptable audit risk and decide preliminary judgment about materiality and tolerable misstatement Put parts 1-9 of the audit in the sequential order in which you would expect them to be performed in a typical audit. Which would be frequently by done before year end, July 31 st ? 5, 9, 7, 2, July 31 st 8, 1, 3, 4, 6...
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This note was uploaded on 10/05/2011 for the course ACG 5637 taught by Professor Monikacaushoulli during the Fall '08 term at University of Florida.

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L10 Notes_Part_11 - Improperly capitalizing the cost of...

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