Part 3
Audit Applications
1
CHAPTER 4-5-6
Pre-engagement
Understand the
Obtain the
arrangements
client`s business
financial statements
Audit planning tools
Preliminary
analytical
procedures
Preliminary
materiality
decisions
Preliminary
risk
assessment
Audit
programs
2
Internal Control Evaluation and Control Risk Assessment
Obtain an understanding of the client’s internal control
Control
environment
Accounting
system
Document the
environment
Document the
system
Control
procedures
Preliminary
risk
assessment
Document the
procedures
Assess control risk (preliminary)
Perform test of
Not - Assess control risk below the maximum +
control procedures Audit
perform
programs
Document the control
risk assessment
3
Audit programs
Nature, time, extent
4
常见的业务循环
消费者
供应商
融资与投资循环
（采购和应
付账款循环)
（销售和应收账款循环）
(存货循环)
产成品
(生产循环)
工厂、车间
(工资循环)
劳动力
原材料
5
Slide B6
划分业务循环
筹 资
货币资金
投 资
固定资产
采 购
工 资
存 货
生 产
销 售
Revenue and
Collection Cycle
Acquisition and
Expenditure Cycle
Including Audit of
Accounts Payable and
Inventory Existence
Production and
Payroll Cycle
Including Audit of
Inventory Valuation
and Capital Assets
Finance and
Investment Cycle
6
CHAPTER 9 Revenue and
Collection Cycle
• 1. Typical Activities
• 2.Audit Evidence in Management
Reports and Data Files
• 3.Control Risk Assessment
• 4.Audit Cases: Substantive Audit
Procedures(4)
7
CHAPTER 9 Revenue and
Collection Cycle
• 5.Special Note:
• The Existence Assertion
• Using Confirmations
• Audit of Bank Reconciliation
with Attention to Lapping and Kiting
8
1. Typical Activities
（1）接受和处理顾客订单，包括批准信用；
（2）向顾客提供货物和劳务；
（3）开具账单给顾客并登记应收账款；
（4）收集并存放向顾客收取的现金；
（5）调整银行对账单。
• P350，E9-1
9
START
HERE
Cash
reconciliation
Customer
payments
(cash receipts)
Deposit cash
in bank
Monthly
statements
To
customer
Cash receipts
Collections recording
Cash
custody
Sales
invoice
To
customer
Accounts
receivable
recording
Bill
Customers
Shipping
documents
Customer
Orders
Sales
authorization
Physical
custody
Credit
Warehousing Granting
Shipping and
Delivery
To
customer
Cash
receipts
transition
file
Accounts
receivable
master
file
Shipping
document
transaction
file
Customer’s
purchase orders,
contracts
Credit files,
reports
Accounts/Records
Cash in bank
Perpetual
inventory
records
Cash receipts
Accounts receivable
Allowance for doubtful
Cash
balances
(account)
file
Bank
statements
Shipping
documents(copy)
Customer
order
Sales invoice
(copy)
accounts, write-offs
Shipping
documents
(copy)
Bad debt expense
sales revenue
Sales returns, allowances,
discounts
Perpetual inventory
records,
shipping records
10
Account/Records
• Cash in bank
• Cash receipts
• accounts receivable
• Allowance for doubtful accounts,write-offs
• Bad debt expense
• Sales revenue
• Sales returns, allowances, discounts
• Perpetual inventory records, shipping records
11
Segregation of responsibility
• authorization
• Custody
recording
• reconciliation
12
Segregation of responsibility
• A.authorization of sales and accounts
receivable
• Custody, recording, reconciliation
• B. Custody of inventory and cash
• .authorization , recording, reconciliation
13
Segregation of responsibility
• C.recording(accounting)
• .authorization, Custody, reconciliation
• D. Reconciliation
• .authorization, Custody, recording
• combination of 2 of more
14
（1）SALES AND ACCOUNTS
RECEIVABLE AUTHORIZATION
• Enter the order entry in the computer terminal
• computer system perform automatic
authorization procedures(be imbedded in)
• access to the master files (changes) must be
limited
• pending order, packing slip ,updates the
inventory master file, should be numbered in a
numerical sequence.
• The price list master file.
15
Inventory
A/R
master
master
(subsidiary) (subsidiary)
Credit
check
files
8
4
Price list
master
file
Pending
order
master
Back
order
master
Sales
detail
(journal)
General
ledger
master
3
Customer
purchase order
On-line sales processing
1
2
•Authorized terminal ID
•Sales order screen
•Automatic credit check
•Inventory-on-hand check
•Immediate update all databases
•On-line status query
Sales order
Order entry
Terminal
logs
Invoices
•Automatic transfer from pending
order to A/R and G/L master files
Back order
report
Daily sales
report
5
Packing
slip
Marketing
management
Stockroom
Packing
slip
7
Sales analysis
Credit
management
6
Shipping
Terminal
logs
A/R listing
and aging
Monthly
customer
statements
16
Custody
• Transfer, Packing slip
• Storekeepers or the shipping dep change
the quantity(combine with a recording
function)
• “custody” of accounts receivable records to
alter the records(combine with
authorization and recording responsibility)
17
recording
• System:
(1)produce a bill of lading shipping document
(2)remove the order from the pending order
master file
(3)produce a sales invoice
• authorization,custody, reconcilation
18
2
Inventory
master
(subsidiary)
A/R
master
(subsidiary)
Credit
check
files
Customer
purchase order
Price list
master
file
Pending
order
master
Back
order
master
Sales
detail
(journal)
Packing
slip
On-line sales processing
•Authorized terminal ID
•Sales order screen
•Automatic credit check
•Inventory-on-hand check
•Immediate update all databases
•On-line status query
Sales order
Order entry
Terminal
logs
3
Invoices
•Automatic transfer from pending
order to A/R and G/L master files
Back order
report
Daily sales
report
General
ledger
master
Sales analysis
Marketing
management
Stockroom
Packing
slip
1
Credit
management
Lading
Shipping
A/R listing
and aging
Terminal
logs
Monthly
customer
statements
4
19
periodic reconciliation
• The sum of customers` unpaid balances with
account receivable control account total.
• Age trial balance
• confirmation
20
(2)Cash receipts and cash
balances authorization
• Custody
• recording
• periodic reconciliation
• (deposit slip 2 to cash remittance
lists 3)
21
Accounts receivable
2
START
Cash received
Prepare cash
remittance
list
C.R.L.
Approve
discounts
Prepare
deposit.
2
Prepare cash
receipts journal.
Post to general
ledger..
Post
to customer
accounts
Cash
receipts
journal
Money
C.R.L.
1
1
Approval
of discounts noted
on remittance list.
3
C.R.L.
2
Cash
1
remittance
list
General ledger
Individual
customer
accounts
subsidiary
3
To
bank
Deposit sip 2
Deposit slip 1
All cash receipts
are deposited.
C.R.L.
3
Accounts
receivable
control
Cash
accounts
Cash
2
remittance
list
Cash
1
remittance
list
Date
Date
Deposit sip 2
Monthly bank
statement
Prepare
monthly bank
reconciliation.
22
2.Audit Evidence in Management
Reports and Data Files
•
•
•
•
•
•
•
Pending order master file
credit check files
price list master file
sales detail file(sales journal)
sale analysis reports(employee ,region)
accounts receivable aged trail balance
cash receipts journal
23
3.Control Risk Assessment
It governs the nature,timing, and extent
of substantive audit procedures
that will be applied in the audit of
account balance.
24
Account balance
p356
Cash in bank
Accounts receivable
Allowance for doubtful accounts
Bad debt expense
sales revenue
Sales returns, allowances,discounts
25
3.Control Risk Assessment
• (1)General control considerations
• (2)detail test of controls
• (3)summary: Control Risk Assessment
26
(1)General control considerations
• control
• Segregation of responsibilities. P356
• fidelity bond (persons handle cash)
• detail control checking procedures(1-8)
27
Segregation of responsibility
• authorization
• Custody
recording
• reconciliation
28
detail control checking procedures
(1)no sales order should be entered without a
customer order.
(2)a credit-check code or manual signature
should be recorded by an authorized means.
(3)access to inventory and the shipping area
should be restricted to authorized persons.
(4)access to billing terminals and blank
invoice forms should be restricted to
authorized persons.
29
detail control checking procedures
(5)accountants should be under orders to
record sales and accounts receivable.
(6)customer invoices should be compared
with bills of lading and customer orders.
(7)pending order files should be reviewed
in a timely fashion to avoid failure to bill
and record shipments.
(8)bank statements should be reconciled in
detail monthly.
30
THE WAY TO OBTAIN
information about the control
• internal control questionnaire
(appendix 9A, p397)
• walk-through or sample of one
With enquiry
31
(2)detail test of controls audit
procedures
• Objective:E 9-4, P358
(1)identification of the data population from
which a sample of items will be selected for
audit.
(2)an expression of the action that will be
taken to produce relevant evidence.
Action:vouching, tracing, observing, scanning,
recalculating.
32
two direction(E9-5)
Shipping
document file
Sales
invoice file
Trace shipping
evidence to invoice
sample
A-3-b
A-1-b
Vouch to shipping
document evidence
sample
•E9-6
33
(3)summary: Control Risk
Assessment
Control risk is low: be limited in
cost-saving ways
Control risk is high:be designed to
lower the risk of failing to detect
material error in the account balance.
34
4. Substantive Audit Procedures
• The Audit Procedures to gather evidence on
account balance are called “Substantive
Procedures ”.
• Its goal is to detect evidence of errors,
irregularities, and frauds if any exist in the
accounts as material overstatements or
understatements of the account balances.
35
4. Substantive Audit Procedures
• some amount of Substantive Audit
Procedures ought to follow the
assessment of control risk.
• Auditor should not place total reliance
on controls to the exclusion of other
procedure.
36
4. Substantive Audit Procedures
• Substantive Audit Procedures
differ from
test of controls audit procedure
In their basic purpose.
• Dual-purpose procedure.
• Detail substantive procedure,
appendix9B
37
The structure of casette
• Problem
• method
• paper trail(a set of telltale signs)
• amount
• audit objective
• control
• test of control
• audit of balances
38
Casette 9.1 the canny cashier
D.Bakel, the assistant controller of SEI.
SEI, Maintained accounts receivable for
school districts in the region.
Customers received credit by using their
own credit cards.
39
Method: D.Bakel` DUTIES
• (1)company cashier--received all the
incoming mail payments, the credit card
account, the cash and cheques.
• (2)prepared the bank deposit(deliver)
• (3)prepared a remittance worksheet
• (4)reconciled the bank statement.
• No one else review deposits or the bank
statement.
40
Bank
Account
(SEI)
Sports
Equipments
discounts
.funds
3
Add 2%
discount
1. Bank
Account
(SEC)
(SEI)
schools
payments
2. Cash,cheques
school district payment
SEI
receipts
interests
41
Open a bank account (SEC)
(1)deposit cash,cheques(SEI) in the SEC account.
• Earning the interest.
(2)wrote SEC cheques to SEI to replace the
“borrowed” funds.
42
Stole payment
• (1)deposit payment to SEC
• (2) deposit SEC cheques in SEI, giving
the credit
• (3)approved an additional 2% discount
• SEC paid in less( 2%)
43
LAPPING or teeming and lading
截留挪用，早收晚解
• 采用递延记录现金收入的方法，掩盖库
存现金的短缺。
• 例如，将一个客户交来的现金，记录为
客户的应付账款，然后再将第二个客户
交来的现金，记入第一个客户账户内
（冲减应付账款）。
• 依次循环碾转挪用，直到他归还这笔现
金为止。
44
amount
• 6 years
(1)average balance: $150 000
Interest: $67 500
(2)extra discount: $120 000
45
Audit approach
• Objective
• Control: segregation, supervision
• test of control:validity,completeness
Audit balance:
control risk of incorrect accounting
Time: year-end date
Nature: positive confirmation
Extent: sample, all 72 school district accounts
• p364
46
5.Special Note
•
• (1)The Existence Assertion
(2)Using Confirmations
• (3)Audit of Bank Reconciliation
with Attention to Lapping and
Kiting
47
(1)The Existence Assertion
• Existence and right assertion
1.recalculation
(prepaid expenses, interest, rent, bank reconciliation)
form
2.physical observation
(autos,land,building,petty cash, undeposited receipts)
3.confirmation
48
Audit procedures
4.Verbal enquiry
5.examination of documents(vouching)
6.scanning
7.analytical procedures
49
(2)Using Confirmations
• Bank confirmation,372;
• aged trial balance,p373
• Positive confirmation, p374
• negative confirmation, p375
• response rate
detection rate= the number of exceptions
reported to auditors/the number of account
errors intentionally reported to customers) 50
(3) Audit of Bank Reconciliations
with Attention to Lapping and
Kiting
• Accounts receivable lapping:
credit given to customers for whom no
payments were received on the day in
question
Cheques listed on
A sample of
Deposit slips
Customer credits
51
支票
收款人
B
支票
cheque kiting
存款单2
1
付款人
A
收款人
开户银行X
2
支票
结算单3
付款人
开户银行Y
结算单2
52
1
收款人银行基于支票有效的假定，
立即将收入支票金额，加入收款
人银行账户的余额。
Cheque kiting
成立的结算方式
53
Cheque kiting
空头支票，移挪补空
• 1.using a hot cheque,depositing money from one
bank to another.
• 2. The depository bank does not know the
cheque is on insufficient funds.
• 3.the deficiency is covered by another hot
cheque from another bank account.
• 4.customer uses the time required for cheques to
clear to obtain an unauthorized loan.
54
Auditing assignments(CH9)
•
•
•
•
•
•
1.prepare chapter 10.
2.下列各题，每人均做，书面完成 。
(1)9.1, 9.6, 9.8, 9.9, 9.11, 9.22, 9.27 ,9.28
(2)9.34--9.49
(3)9.53, 9.60
3.Casette 9.2, 9.3, 9.4, finished by team1，
2，3，and make a presentation in the class
55
56