Podcast
Questions and Answers
What is an audit?
What is an audit?
A systematic process of objectively obtaining and evaluating evidence regarding assertions about economic actions and events.
Which of the following is NOT part of the audit process?
Which of the following is NOT part of the audit process?
The cycle that includes revenue and receipts is referred to as the ______ Cycle.
The cycle that includes revenue and receipts is referred to as the ______ Cycle.
Revenue/Receipt
Why is cash considered a high-risk area in auditing?
Why is cash considered a high-risk area in auditing?
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All audit time is allocated to all accounts equally.
All audit time is allocated to all accounts equally.
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What is the first step in the audit process?
What is the first step in the audit process?
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What should be reconciled before performing substantive testing in any account?
What should be reconciled before performing substantive testing in any account?
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Which assertion involves confirming that cash is legitimately owned by the entity at the reporting date?
Which assertion involves confirming that cash is legitimately owned by the entity at the reporting date?
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Match the following audit objectives with their corresponding audit procedures:
Match the following audit objectives with their corresponding audit procedures:
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Study Notes
Overview of Auditing
- An audit is a systematic process to objectively obtain and evaluate evidence about economic actions and events.
- The goal is to compare management assertions with established criteria and communicate results to users.
- Assertions refer to management's claims on the fair presentation of financial statements per accounting standards.
The Audit Process
- Engagement acceptance marks the initiation of the audit.
- Audit planning outlines strategies and scope.
- Internal control consideration evaluates effectiveness in preventing fraud or errors.
- Performing substantive procedures involves detailed testing of transactions and balances.
- Completing the audit entails reviewing all findings and ensuring compliance.
- Issuance of the audit report communicates results and opinions on financial statements.
Transaction Cycles
- Revenue/Receipt Cycle involves the generation and collection of income.
- Expense/Disbursement Cycle encompasses the processes for managing and recording expenses.
- Human Resources/Payroll Cycle relates to employee compensation and benefits.
- Production/Conversion Cycle focuses on the transformation of raw materials into finished goods.
- Financing/Investing Cycle pertains to funding operations and investments in assets.
Audit of Cash
- Cash is critical to business operations and regarded as high-risk for misappropriation.
- Strong internal controls and meticulous monitoring are essential for safeguarding cash.
- Audit procedures for cash often exceed expectations due to its inherent risk.
- Reconciliation of trial balances with the general ledger is foundational before substantive testing.
Summary of Audit Objectives and Substantive Audit Procedures
- Existence*
- Objective: Ensure all cash on the Statement of Financial Position (SFP) is valid.
- Procedures include confirmations to banks, surprise cash counts, and testing bank reconciliations.
- Completeness*
- Objective: Confirm all cash owned by the entity is recorded on the SFP.
- Similar procedures as existence, including bank confirmations and reconciliation testing.
- Rights and Obligations*
- Objective: Verify legal ownership and unrestricted use of reported cash.
- Procedures include confirmations, surprise counts, and reconciliation checks.
- Valuation and Allocation*
- Objective: Ensure cash is recorded at realizable value and reconciles with supporting documents.
- Procedures include confirmations and thorough testing of reconciliations.
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Description
This quiz covers the fundamentals of auditing, including the processes involved in obtaining and evaluating evidence related to economic events. Explore the relationship between management assertions and established accounting criteria, and understand the communication of audit results to users. Perfect for students or professionals looking to refresh their knowledge in auditing.
