Cut-off bank statements (e.g., January 20, 20X8 bank statement) may be used to test the outstanding items. Such statements, similar to bank confirmations, are mailed directly to the auditor. Alternatively, the auditor might examine the reconciling items by viewing online bank statements. (Read-only rights can be given to the auditor.)
Question 21. Describe TWO major controls for revenue returns and allowances transaction Two major controls for processing of credit memoranda for sales returns and allowances transactions are: 1. each credit memorandum should be approved by someone other than the individual who initiated it . This provides proper segregation of duties between access to the customer’s record and authorization for issuing a credit memorandum 2. a credit for returned goods should be supported by a receiving document indicating that the goods have been returned . The auditor can perform tests of controls on credit memoranda by examining a sample of credit memoranda for proper approval and the presence of the respective receiving documents. For a credit memorandum issued for a reason other than a return of goods, approval by an appropriate individual is the critical control.a credit for returned goods should be supported by a receiving document indicating that the goods have been returned.
Question 22. List the assertions about Classes of Transaction and Events for the Period under Audit 1. Occurrence The occurrence assertion relates to whether all recorded transactions and events have occurred and pertain to the entity. For example, management asserts that all revenue transactions recorded during the period were valid transactions. The occurrence assertion is relevant for revenue transactions because the entity’s personnel might have incentives to record fictitious transactions. Occurrence is sometimes also referred to as validity. 2. Completeness The completeness assertion relates to whether all transactions and events that occurred during the period have been recorded. For example, if an entity fails to recorda valid revenue transaction, the revenue account will be understated. Note that the auditor’s concern with the completeness assertion is opposite the concern for occurrence. Failure to meet the completeness assertion results in an understatement in the related account, while failure to meet the occurrence assertion results in an overstatement in the account. 3. Authorization The authorization assertion relates to whether all transactions have been properly authorized. For example, the purchase of a new manufacturing facility should be approved by the board of directors. Auditing standards use the word “accuracy” to reflect that transactions and events have been both recorded accurately and properly authorized. Since an unauthorized transaction could be accurately recorded, we
have found that it is easier to think of proper authorization and accurate recording as separate assertions.
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- Fall '19