Vouching Tracing Tests Flashcards

Questions and Answers

What does 'existence' typically refer to in an auditing context?

Understatement of liabilities

Overstatement of assets/income (correct)

Accuracy of payroll data

Completeness of expenses

Why do expenses and liabilities tend to be understated?

To hide financial difficulties

To make profits appear higher (correct)

To comply with regulations

To avoid paying taxes

What is usually tested in relation to accounts receivable?

Valuation

What two aspects does inventory typically relate to?

Rights and obligations, and valuation Signup and view all the answers

What is the main concern regarding payroll accuracy?

Calculating hours worked and pay rates correctly Signup and view all the answers

What tests are used to verify cash amounts?

Cut-off tests and reconciling for outstanding checks Signup and view all the answers

What procedures are usually applied to interest expenses and income?

Analytical procedures Signup and view all the answers

The primary concern for unrecorded liabilities is to ensure that liabilities aren't __________.

understated Signup and view all the answers

Which procedure is suitable for detecting unrecorded liabilities?

Vouching Signup and view all the answers

What does tracing transactions help an auditor confirm?

Completeness of records Signup and view all the answers

What is the order of documents related to sales?

Sales order, credit authorization, inventory control, shipping, invoicing, accounts receivable, general accounting, and treasurer Signup and view all the answers

Match the following terms with their definitions:

Existence = Testing whether assets are overstated Vouching = Books to source documents Tracing = Source documents to books or records Understatement = Not fully capturing liabilities or income Signup and view all the answers

What does the publication from Ebsco focus on?

The distinction between vouching and tracing procedures in audits Signup and view all the answers

Study Notes

Existence

Testing for existence is crucial due to the tendency of clients to overstate assets and income on financial statements (FS).
The aim is to corroborate the reported figures with supporting documentation.

Liabilities

Expenses and liabilities are typically understated, as clients may want to present a stronger financial position.
Auditors need to confirm the presence of liabilities through the examination of documents to ensure they are accurately recorded in FS.

Accounts Receivable (AR)

AR primarily involves valuation issues; it may be necessary to write off certain AR items.
Regular assessments are required to determine the appropriate valuation of receivables.

Inventory

Inventory testing focuses on rights, obligations, and valuation.
Inventory may need to be reassessed for value, especially if it is old or on consignment—meaning it does not belong to the client.

Payroll

Accuracy in payroll is vital, ensuring correct calculations of hours worked and pay rates.
Mistakes in payroll can lead to significant financial discrepancies.

Cash

Cut-off tests are essential to verify that cash balances align with bank records.
Reconciling outstanding checks and cash in transit is necessary for accurate cash reporting.

Interest Expense and Income

Analytical procedures are predominantly used to evaluate interest expenses and income.
These procedures help auditors estimate what interest income or expense should approximate, applicable to various expense accounts.

Additional Concepts

Existence, occurrence, and completeness should be considered alongside the mentioned liability accounts for thorough auditing.
The specific context matters significantly when applying these principles.

Unrecorded Liabilities

A search for unrecorded liabilities ensures that companies do not obscure liabilities by delaying payments past year-end.
Auditors analyze recent payments against vendor invoices and receiving reports to verify timely recording of liabilities.

Tracing (T-C-U)

Tracing involves linking source documents to books or records, determining completeness, and identifying potential understatement of accounts.

Vouching (V-E-O)

Vouching is the process of verifying transactions from books to source documents aimed at confirming existence and detecting overstatements.

Auditing Procedures

To search for unrecorded liabilities, vouching from cash disbursements recorded after year-end to supporting documents is effective, despite vouching traditionally being for overstatement testing.
The distinction between vouching and tracing is pivotal, especially regarding timing concerning year-end transactions.

Order of Sales Documents

The correct sequence for sales documents includes sales order, credit authorization, inventory control, shipping, invoicing, accounts receivable, general accounting, and treasury.

Article on Internal Controls

Internal controls and auditing processes are crucial for government accountability.
The article details vouching for validation checks on overstatement and tracing for completeness checks regarding understatement of account balances.

Description

This quiz focuses on key concepts related to vouching and tracing tests in financial statements. It covers definitions and common issues related to existence and liabilities in auditing. Use these flashcards to reinforce your understanding of asset overstatement and liability understatement.