Audit Practice and Procedures II

Accumulating and evaluating evidence about information to determine the degree to which it corresponds with established criteria.

Auditing serves to assess and secure accountability for the conduct and performance of others, acting as a form of social control.

Individuals or groups need reassurance or information about an entity's conduct or achievements, but can't obtain it in full themselves.

Auditors must be skilled and qualified to perform an audit properly.

Auditors must be free from bias or influence to give an unbiased opinion.

Standards, for example IFRS, against which the information is measured in an audit.

The word "audit" comes from the Latin word "audire" meaning "to hear".

Audits play a vital role in upholding societal welfare and stability.

An entity's team that reviews and improves its governance, risk management, and internal control processes. It aims to identify and fix problems before they become too serious.

A separate independent team that examines a company's financial reports to verify their accuracy and compliance with regulations. They provide an opinion on the financial statements.

An effective internal audit function can reduce the work external auditors need to do, but it can't eliminate it completely. External auditors still need to assess the overall control system and audit risks.

To provide confidence and trust in a company's financial information by verifying its accuracy and adherence to accounting standards.

A document used by external auditors to communicate significant issues found during an audit to a company's management. It outlines recommendations for improvements.

The internal audit function changes based on external factors like technology, the environment, and stakeholder expectations.

New regulations and the evolving business landscape require internal auditors to adapt their processes and approaches.

Internal Audit shifting from traditional compliance focus to a value-driven, strategic role that aligns with the organization's business objectives, enhances efficiency and effectiveness, and proactively addresses both current and emerging risks.

Internal Audit moving beyond just compliance to actively contribute to cost efficiencies, identify and utilize relevant skills, and contribute to sustainable business improvements, ultimately creating a competitive advantage.

Three steps for Internal Audit to achieve transformation: 1) Aligning with business objectives, 2) Improving efficiency and effectiveness, 3) Broadening risk coverage and being proactive.

External auditors are responsible for promoting confidence and trust in financial information by independently reviewing and verifying financial statements.

Internal Audit should streamline processes, reduce costs, and ensure the audit function is efficient and effective.

Internal Audit should identify and address emerging risks, not just focus on past or existing risks.

Internal Audit can create a competitive advantage by contributing to sustainable business improvements, cost efficiencies, and identifying and utilizing the right skills.

Internal Audit reviews a company's processes and systems to make sure they are working properly and effectively. They look for risks and problems, and help the company improve its operations and protect itself.

The IPPF is a set of rules and guidelines for internal auditors. It helps them understand their responsibilities and how to do their job effectively.

To become more effective, Internal Audit should: Align with company goals, Improve efficiency and effectiveness, Be proactive on risks, Find and use the right skills

This letter is sent by external auditors to a company's management. It points out any problems found during the audit and gives suggestions on how to fix them.

Internal Audit helps companies reduce risk, improve efficiency, and become more successful. They help the company avoid big problems and operate smoothly.

Internal Audit has to adapt to changes in the business world like new technology, regulations, and customer expectations. It's constantly evolving.

An independent professional who examines a company's financial records to ensure they accurately reflect its financial position and comply with accounting standards.

An employee of a company who reviews the company's financial and operational processes to identify risks and ensure adherence to policies and procedures.

Information used by auditors to support their opinions or conclusions about a company's financial statements. It includes records, statements, and other verifiable information.

The framework of rules and practices that a company's board of directors use to ensure accountability, fairness, and transparency in its operations.

The obligation of an individual or organization to take responsibility for its actions and to disclose results transparently.

To provide assurance to investors, lenders, and other stakeholders that a company's financial statements accurately reflect its financial performance and position.

The scope of an external audit is determined by its purpose, and external auditors design their work programs based on their assessment of risk within the organization.

A set of accounting standards used in the United States to ensure consistency and transparency in financial reporting.

A document provided by external auditors to stakeholders that summarizes their findings and opinion on the company's financial statements.

External auditors must maintain independence from the companies they audit to ensure objectivity and credibility of their findings.

External auditors primarily look backward at a company's financial records to verify their accuracy and compliance with accounting standards.

External auditors perform their work at the end of the year and issue a report (audit management letter) to management and stakeholders, which can include suggestions for improvement.

External auditors assess a company's financial statements for external stakeholders, while internal auditors focus on improving internal control systems and processes.

The cycle of activities involved in selling goods or services and collecting payment from customers.

The Sales & Collection Cycle begins with a customer request for goods or services.

The Sales & Collection Cycle ends with converting the sale into cash.

The main classes of transactions are sales, cash receipts, sales returns, allowances, write-offs of uncollectible accounts, and bad debt expense.

The main accounts related to the cycle include sales, accounts receivable, cash in bank, sales returns and allowances, allowance for uncollectible accounts, and bad debt expense.

The main business functions are processing customer orders, granting credit, shipping goods, billing customers, recording sales, processing cash receipts, processing sales returns and allowances, charging off uncollectible accounts, and managing bad debt.

This function involves receiving and verifying customer orders for goods or services.

Businesses decide if they will extend credit to customers and set credit terms.

This function involves getting goods to customers and providing accurate shipping documentation.

This function involves creating invoices, sending them to customers, and recording the sale in the accounting system.

A document created when a customer order is received, initiating the sales process.

The process of creating and sending invoices to customers for goods or services delivered.

A sales transaction involves: processing customer orders, granting credit, shipping goods, billing customers, recording sales, processing cash receipts, recording sales returns, charging off uncollectible accounts, and providing for bad debt.

A database containing all completed sales transactions.

A central database holding all customer account balances.

A document sent with payments, detailing what the payment is for.

A document issued to customers for returned goods or price adjustments.

A document approving the write-off of a bad debt.

Auditors aim to ensure that all sales have been recorded, recorded only once, and recorded at the correct amount.

Setting aside money to cover potential uncollectible customer debts.

A set of questions used to assess the effectiveness of a company's internal control system, covering aspects like authorization, documentation, and verification.

A testing technique where auditors trace transactions through the entire sales process to assess the effectiveness of internal controls.

Ensuring that all sales transactions are approved by authorized personnel, preventing unauthorized sales or discounts.

Using documents with unique sequential numbers to track all sales transactions and prevent missing or fraudulent documents.

Regularly comparing sales data with other records, such as customer statements, to identify potential inaccuracies.

Examining the process of removing uncollectible accounts from a company's receivables to ensure proper authorization and accuracy.

Comparing financial data across periods or to industry averages to identify potential anomalies or misstatements.

Salary structures beyond regular pay, like bonuses and stock options, needing careful auditing for proper calculation.

The maximum amount of error that an auditor is willing to accept in a particular account balance.

The susceptibility of an account balance or class of transactions to misstatement, assuming there are no related internal controls.

A bank statement that covers a period of 7-10 days after the balance sheet date.

To verify reconciling items on the client's year-end bank reconciliation using evidence not accessible to the client.

The auditor requests the bank to send the statement directly to them for the period after the balance sheet date.

To confirm if the client's bank reconciliation is accurate and whether the recorded bank balance matches the actual cash.

The risk of errors in payroll calculations, unauthorized payments, or fraud.

The auditor tests controls and transactions, and performs analytical procedures on payroll accounts.

Auditing specific details of payroll liability accounts to meet balance-related audit objectives.

Verifying whether the payroll system is properly controlled and accurately reflects payments made to employees.

A cutoff bank statement includes a partial-period bank statement with cancelled checks, deposit slips, and other related documents.

The cutoff bank statement helps auditors tie the company's bank balance at year-end to the actual cash held by the bank.