Accounting Chapter 11: Revenue and AR Process

False (B)

Type 1 subsequent events provide evidence of conditions that existed at the date of the financial statements, requiring adjustments, while Type 2 events arise after this date and require disclosure if important.

<p>year end fieldwork</p> Signup and view all the answers

<p>Inquiring with management = Gathering verbal insights on subsequent events Reading minutes of meetings = Reviewing official records for discussions of events Scanning accounting records = Checking for transactions related to subsequent events Inquiring of legal counsel = Assessing potential litigation matters</p> Signup and view all the answers

<p>Regular customer reviews are conducted by sales team (B)</p> Signup and view all the answers

<p>True (A)</p> Signup and view all the answers

<p>To assess the effectiveness of internal controls in preventing material misstatements.</p> Signup and view all the answers

<p>occurrence</p> Signup and view all the answers

<p>Substantive Procedures = Tests designed to obtain evidence about specific financial statement assertions Tests of Controls = Assessment of the effectiveness of an entity's internal controls Cash Receipts Management = Processes to ensure timely and accurate collection of cash Revenue Recognition = Criteria for acknowledging income on the financial statements</p> Signup and view all the answers

<p>Tracing shipping documents to sales invoices (A)</p> Signup and view all the answers

<p>True (A)</p> Signup and view all the answers

<p>Fraud, theft, inaccurate recording, and lack of segregation of duties.</p> Signup and view all the answers

<p>To ensure accuracy in inventory records (D)</p> Signup and view all the answers

<p>False (B)</p> Signup and view all the answers

<p>Inventory that is held by one party but owned by another, awaiting sale.</p> Signup and view all the answers

<p>reasonably</p> Signup and view all the answers

<p>Pending litigation = Legal disputes that may result in a loss Product warranties = Liabilities that may arise from defective goods Income tax disputes = Potential future tax obligations based on current agreements Guarantees = Commitments to fulfill another's obligations</p> Signup and view all the answers

<p>Board meeting minutes (B)</p> Signup and view all the answers

<p>False (B)</p> Signup and view all the answers

<p>Evaluate and possibly write off damaged items.</p> Signup and view all the answers

<p>legal</p> Signup and view all the answers

<p>They must be reviewed and included (D)</p> Signup and view all the answers

<p>To provide a statement for the period after the balance sheet date (A)</p> Signup and view all the answers

<p>False (B)</p> Signup and view all the answers

<p>Existence assertion</p> Signup and view all the answers

<p>Lapping</p> Signup and view all the answers

<p>Comparing physical counts to perpetual records = Completeness assertion Review of obsolete inventory = Valuation assertion Cycle counts = Existence assertion Strong controls over consignment inventory = Rights and obligations assertion</p> Signup and view all the answers

<p>Fraud risk is high. (C)</p> Signup and view all the answers

<p>True (A)</p> Signup and view all the answers

<p>Obtain original purchase documents to verify cost</p> Signup and view all the answers

<p>Kitting</p> Signup and view all the answers

<p>Preventing unauthorized access to inventory (A)</p> Signup and view all the answers

<p>Perform income tax calculations (D)</p> Signup and view all the answers

<p>False (B)</p> Signup and view all the answers

<p>The entity's ability to continue as a going concern for at least one year beyond the issuance date of the financial statements.</p> Signup and view all the answers

<p>letterhead</p> Signup and view all the answers

<p>Analytical procedures = Assess overall financial health Review of subsequent events = Identify potential issues post-audit Inquiry of legal counsel = Obtain legal perspectives on financial matters Confirmation with related parties = Verify financial arrangements with third parties</p> Signup and view all the answers

<p>To communicate findings and recommendations (A)</p> Signup and view all the answers

<p>False (B)</p> Signup and view all the answers

<p>Management representation letter</p> Signup and view all the answers

<p>material noncompliance</p> Signup and view all the answers

<p>Reading minutes of meetings (A)</p> Signup and view all the answers

Ensuring inventory items have unique tags to avoid double-counting.

Sampling inventory items to check accuracy of full count.

Checking for empty spaces or containers affecting quantity.

Inventory from third parties, requiring separate accounting.

Possible future loss, contingent on uncertain events.

A contingent liability that is highly probable to occur.

Contingent liabilities with a more than remote yet less than likely chance of occurrence

Contingent liability with an extremely small chance of occurring.

Formal confirmation request from attorneys involved to the client. Attorneys can not speak about client's case without permission.

Document signed by management confirming factual data affecting financial statements during an audit.

A bank statement covering the period after the balance sheet date, used to verify cutoff testing.

Fraud risk assessment technique that reconciles cash receipts and disbursements between accounting records and the bank.

Fraudulent practice where cash is stolen before recording, often covering shortages with future receipts.

Fraudulent practice where cash is stolen after recording, transferring funds between accounts to inflate balances.

Audit procedure where the auditor verifies the accuracy and completeness of the physical inventory count.

Periodic counting of a small portion of inventory to compare with perpetual records, testing the existence assertion.

Procedure to verify the cost of inventory, obtaining purchase documents to recalculate costs.

Assessing obsolescence and slow moving inventory to ensure accurate valuation.

Procedure to verify all inventory items are recorded in the perpetual records, comparing physical counts to perpetual records.

Checking for proper ownership and responsibility over inventory (e.g., consignment inventory).

Initial audit planning involves understanding the client's revenue process, assessing risks associated with revenue assertions, and conducting analytical procedures.

Understanding internal controls and preliminary audit strategy. It includes understanding client controls, transaction flows, and identifying weaknesses and related controls.

Consignment sales, rights/returns, and bill-and-hold transactions are common areas where revenue can be manipulated.

Primary test for existence assertion in AR. Direct communication with customers for verification.

Auditing invoices around the year-end to ensure revenue is recorded in the correct period.

Reconciling bank and book balances to identify discrepancies, a key control over cash.

Auditing procedure to verify bank balances, transactions, and loan details.

Checking sales and disbursement transactions around the year-end to confirm they are recorded in the correct accounting period.

Events that happen after the end of the fiscal year that can affect the company's financial statements. Two types exist.

A subsequent event that provides evidence of conditions that existed at the end of the fiscal year. Requires adjustments to the financial statements.

A subsequent event that provides evidence of conditions that arose after the end of the fiscal year. Requires disclosure but no adjustments.

Auditors need to understand how management identifies and manages subsequent events, often by reviewing records like meeting minutes and financial statements.

These procedures are performed at the very end of an audit to evaluate the overall reasonableness of the financial statements. They involve analyzing financial data and looking for any unusual trends or patterns.

The auditor must re-evaluate the materiality threshold based on the audit findings. This means assessing whether the original materiality level is still appropriate after considering any significant risks or misstatements found.

To corroborate the significant oral representations made by management during the audit. Essentially, it provides written confirmation of what management has already stated verbally to the auditors.

Right at the completion of the audit. It's typically obtained after the auditor has conducted all other necessary audit procedures.

The assumption that a company will be able to continue its operations for at least the next year. Auditors must assess whether there is substantial doubt about this assumption.

Auditors must communicate certain key findings to the audit committee or other governance body. This includes information about material noncompliance with laws and regulations.

These are significant accounting methods used by the company that require careful consideration by the auditor. The auditor must communicate with those charged with governance about these policies and practices.

If the auditor has disagreements with management about the accounting treatment of certain transactions, these disagreements must be communicated to those charged with governance.