One or more specific balance related audit objectives

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Unformatted text preview: each general balance-related audit objective in an audit area such as accounts receivable. For any given account, a CPA firm may decide on a consistent set of specific balance-related audit objectives for accounts receivable, or it may decide to use different objectives for different audits. 6-17 For the specific presentation and disclosure-related audit objective, read the fixed asset footnote disclosure to determine that the types of fixed assets, depreciation methods and useful lives are clearly disclosed, the management assertion and the general presentation and disclosure-related audit objective are both "classification and understandability." 6-18 The four phases of the audit are: 1. 2. 3. 4. Plan and design an audit approach. Perform tests of controls and substantive tests of transactions. Perform analytical procedures and tests of details of balances. Complete the audit and issue an audit report. The auditor uses these four phases to meet the overall objective of the audit, which is to express an opinion on the fairness with which the financial statements present fairly, in all material respects, the financial position, results of operations and cash flows in conformity with GAAP. By accumulating sufficient appropriate evidence for each audit objective, the overall objective is met. The accumulation of evidence is accomplished by performing the four phases of the audit. 6-19 Multiple Choice Questions From CPA Examinations 6-19 a. (2) b. (2) c. (1) 6-20 a. (1) b. (2) c. (1) Discussion Questions And Problems 6-21 a. The purpose of the first part of the report of management is for management to state its responsibilities for internal control over financial reporting. The second part of the report states management’s responsibility for the fair presentation of the financial statements. b. The auditor’s responsibility is to express an opinion on the fairness of the presentation of the financial statements and an opinion on the effectiveness of internal control over financial reporting. 6-22 a. b. Professional skepticism. Auditors are required to perform the audit with an attitude of professional skepticism as the financial statements (F/S) may contain material misstatements which may or may not be intentional on the part of management. The responsibility lies with: i. Management. Auditors must also develop an estimate for comparison purposes, but auditors do not record their estimate on the F/S. ii. Auditors. Management may also test the A/R Allowance as an internal audit function, but they are not required to do so. iii. Management and Auditors. Both must evaluate the adequacy of the A/R Allowance. iv. Management. ONLY management is responsible for the ultimate presentation of A/R Allowance on the F/S. c. A misstatement would be considered material if it is probable that the decisions of a reasonable person relying on the information would have been changed or influenced by the uncorrected errors or fraud. d. If the A/R Allowance estimate developed by management and the auditors is different, the auditor must determine if the amount is material. If the auditor determines the amount is material, the auditor must ask the client to make an adjustment. If the client does not want to make the adjustment, the auditor may consider a qualified or adverse opinion, or withdrawal from the engagement, depending on materiality. 6-20 6-23 CLASS OF TRANSACTIONS a. FINANCIAL STATEMENT BALANCE b. c. TITLE OF JOURNAL TRANSACTION CYCLE PURCHASE RETURNS Purchase returns & allowances Acquisitions Journal Acquisition & Payment RENTAL REVENUE Rent revenue Revenue Journal Sales & Collection CHARGE-OFF OF UNCOLLECTIBLE ACCOUNTS Bad debts Adjustments Journal Sales & Collection ACQUISITION OF GOODS AND SERVICES Repair and maintenance Acquisitions Journal Acquisition & Payment RENTAL ALLOWANCES Rental allowances Adjustments Journal Sales & Collection ADJUSTING ENTRIES (FOR PAYROLL) Rental allowances Adjustments Journal Sales & Collection Accrued payroll Adjustments Journal Payroll & Personnel PAYROLL SERVICE & PAYMENTS Sales salaries Payroll Journal Payroll & Personnel CASH DISBURSEMENTS Accounts payable Cash Disbursements Journal Acquisition & Payment CASH RECEIPTS Accounts receivable Cash Receipts Journal Sales & Collection d. Rental revenue is likely to be recorded in the cash receipts journal at the time the cash is received from renters. It is therefore likely to be recorded as a debit to cash receipts and a credit to rental revenue. The journal will be summarized monthly and posted to the general ledger. There will be required adjusting entries for unearned rent and for rent receivable. A record will be kept of each renter and a determination made whether rent is unpaid or unearned at the end of each accounting period. The entries that are likely to be made in the adjustments journal are posted to the general ledger. Then the financial statements are prepared from the adjusted general ledger. Reve...
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This note was uploaded on 02/04/2014 for the course ACCOUNTING 211 taught by Professor Alikapur during the Fall '13 term at American University of Sharjah.

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