Procedures to Obtain Sufficient Appropriate Evidence Flashcards

A collection of vocabulary flashcards covering audit procedures for cash, A/R, inventory, A/P, revenue, PP&E, debt, investments, payroll, and general audit concepts like vouching and tracing.

Cash (Best Audit Procedures)

Bank confirmation; examine/reperform the bank reconciliation; proof of cash; examine subsequent bank activity.

Cash: Bank balance

Confirm the balance directly with the bank.

Cash: Bank reconciliation

Examine and/or reperform the bank reconciliation and investigate reconciling items.

Cash: Cash receipts recorded but not deposited

Use a proof of cash.

Cash: Checks written but not recorded

Examine subsequent bank statements and disbursements.

Cash: Year-end bank transfer manipulation

Prepare/test a bank transfer schedule.

A/R: Customer actually owes balance

Confirm accounts receivable.

A/R: Customer paid after year-end

Examine subsequent cash receipts.

A/R: Collectibility

Analyze the aging of receivables and examine subsequent collections.

A/R: Sale actually occurred

Vouch recorded sales to customer orders, shipping documents, invoices, and other support.

A/R: Sales may be missing

Trace shipping documents to the sales journal or other accounting records.

A/R: Sales recorded in wrong period

Examine shipping documents and sales transactions around year-end.

Inventory: Physical existence

Observe the physical inventory count.

Inventory: Count accuracy

Perform auditor test counts and compare them with the client's count records.

Inventory: Inventory records accuracy

Compare auditor test counts with inventory records.

Inventory: Obsolete inventory

Inspect inventory condition and review subsequent sales or other evidence of realizable value.

Inventory: Cost/valuation

Examine vendor invoices and recalculate inventory costs.

Inventory: Completeness

Trace receiving reports and other source documents into inventory records.

Inventory: Cutoff

Examine receiving and shipping documents immediately before and after year-end.

A/P: Recorded liability is real

Vouch accounts payable to vendor invoices, receiving reports, and purchase documentation.

A/P: Unrecorded liabilities

Search for unrecorded liabilities by examining subsequent cash disbursements, unpaid invoices, receiving reports, and related documents.

A/P: Completeness

Examine subsequent cash disbursements and search for unrecorded liabilities.

A/P: Vendor balance accuracy

Confirm accounts payable with vendors when appropriate.

A/P: Purchases cutoff

Examine receiving reports around year-end.

Revenue: Sale actually occurred

Vouch recorded sales to shipping documents and other supporting evidence.

Revenue: All sales recorded

Trace shipping documents to the sales journal.

Revenue: Revenue cutoff

Examine shipping documents and sales transactions around year-end.

Revenue: Overstatement risk

Vouch recorded sales to supporting documents.

Revenue: Understatement risk

Trace source documents, such as shipping documents, forward into the accounting records.

PP&E: Asset exists

Physically inspect the asset.

PP&E: Company owns asset

Inspect title, invoices, purchase agreements, or other ownership documents.

PP&E: Recorded cost accuracy

Inspect invoices and supporting documents; recalculate amounts when appropriate.

PP&E: Depreciation accuracy

Recalculate depreciation.

PP&E: Repairs improperly capitalized

Inspect invoices and supporting documentation to determine the nature of the expenditure.

PP&E: Impairment/obsolescence

Inspect the asset and evaluate its condition, use, and related circumstances.

Debt: Debt balance

Confirm debt directly with the lender.

Debt: Loan terms

Inspect loan agreements and related documents.

Investments: Existence/ownership

Confirm with the custodian or broker and inspect securities or other supporting evidence.

Investments: Valuation

Recalculate value using appropriate market information and evaluate the valuation source.

Payroll: Payroll accuracy

Recalculate payroll and inspect supporting personnel and payroll records.

Payroll: Payroll payments

Test payroll disbursements and agree payments to supporting records.

Estimates: Reasonableness

Evaluate the method, significant assumptions, data, and calculations used by management.

Vouching

Start with the accounting records and go backward to supporting evidence. Commonly used to test whether recorded transactions actually occurred.

Tracing

Start with source documents and go forward into the accounting records. Commonly used to test whether transactions were completely recorded.

Observation

Watch a procedure being performed. It provides evidence about what happened at that moment, not necessarily throughout the entire period.

Inspection

Examine records, documents, or physical assets.

Confirmation

Obtain information directly from an independent third party.

Recalculation

Check the mathematical accuracy of documents or records.

Reperformance

Independently perform a control or procedure originally performed by the client.

Analytical procedures

Evaluate plausible relationships among financial and nonfinancial data, including trends and ratios.

Inquiry

Ask management or employees for information. Inquiry alone is generally weaker evidence.

AUD procedure decision framework

1. Identify the account/area. 2. Identify the specific risk or question. 3. Ask what evidence would directly answer it. 4. Choose the procedure that obtains that evidence most effectively.