WHAT’S NEXT...?!!
2 WEEKS &
FINAL EXAM!!!!!!
FINAL EXAM
TWO OF FOUR ESSAYS
TEN MULTIPLE CHOICE
200
100
COMPREHENSIVE ESSAY
AUDIT THEME
RELATE AUDIT PHASES
AUDIT FINDINGS
COMPREHENSIVE ESSAY
AUDIT PROCESS HANDOUT
SIX PHASES
ACTIVITIES
PRODUCTS
SECOND ESSAY
1 OF OTHER 3 QUESTIONS
ONLY RECENT STUFF
AUDIT REPORTS
ALL BUT ONLY
ONLY RECENT STUFF
CASH
ACCOUNTS RECEIVABLE
ACCOUNTS PAYABLE
EXPENSES/CUTOFFS
INVENTORY
FIXED ASSETS
ONLY RECENT STUFF
SUBSTANTIVE TESTS OF BALANCES
WRAP-UP PHASE
- SEARCH FOR UL & SSE
- SUMMARIZE & CONCLUDE - PJE
ISSUE REPORT
EXPENDITURE CYCLE
MIRROR OF THE
REVENUE CYCLE
EXPENDITURE CYCLE
PREPAID EXPENSES
ACCOUNTS PAYABLE &
ACCRUED LIABILITIES
EXPENSE
ACCOUNTS
ACCOUNTS PAYABLE &
ACCRUED LIABILITIES
LIABILITIES
-
FOCUS ON
UNDERSTATEMENT
WORKPAPER SCHEME
BSL
AA
LEAD
AA-1
A/P T/B
AA-1/1
CONFIRMS
AA-2
A/L ANALYSIS
AA-1/2
SEARCH
FOR U/L
ACCOUNTS PAYABLE &
ACCRUED LIABILITIES
 TRIAL
BALANCE OF A/P
 X-REF TO LEAD
 FOOT
 ALL & ONLY TEST TO/FROM
A/P SUBSIDIARY LEDGER
WORKPAPER SCHEME
BSL
AA
LEAD
AA-1
A/P T/B
AA-1/1
CONFIRMS
AA-2
A/L ANALYSIS
AA-1/2
SEARCH
FOR U/L
CONFIRMATION OF A/P
SELECT SAMPLE
MAIL 1st & 2nd REQUESTS
NONREPLIES
TOTAL ERRORS IN SAMPLE
EXPLODE TO POPULATION
SELECTING SAMPLE
BLIND
REQUESTS
ZERO BALANCE
ACCOUNTS
MAJOR SUPPLIERS
VOUCHING A/P
VOUCHING - Examine
documents supporting a
payable or disbursement
VOUCHING A/P
VENDOR’S INVOICE
BILL OF LADING &
PACKING LIST
RECEIVING DOCUMENTS
PURCHASE ORDER
CHECK REQUEST
SEARCH FOR
UNRECORDED PAYABLES
PART OF WRAP UP PHASE
& A CUTOFF TEST
SEARCH FOR
UNRECORDED PAYABLES
 EXAMINE
SUBSEQUENT C/D
OVER A $ SCOPE
 LIST C/D RELATED TO Y/E
 TRACE TO RECORDED A/P
 TOTAL UNRECORDED A/P
 PROPOSE JOURNAL ENTRY
SEARCH FOR
UNRECORDED PAYABLES
CONTINUES THRU
LAST DAY OF FIELD
WORK
GRADUATED SCOPE
AUDITING EXPENSES
AUDITING BY
EXCEPTION
ALREADY PERFORMED?
UNDERSTANDING CLIENT
ASSESS INTERNAL CONTROL
TEST CONTROL TECHNIQUES
SUBSTANTIVE TESTS
TESTS OF Y/E A/P
ALREADY PERFORMED?
 WAGE
& SALARY EXPENSE Payroll cycle audit
 DEPRECIATION EXPENSE - Audit of
Fixed Assets
 INTEREST EXPENSE - Audit of Loans
Payable
 COST OF GOODS SOLD - Audit of
Inventory & Sales
AUDIT BY EXCEPTION
 DO
ANALYTICAL REVIEW
 FOR UNUSUAL VARIATIONS,
DO ADDITIONAL WORK - Reasonable Business Explanation
- Error and PJE
 NO UNUSUAL VARIATIONS,
STOP
AUDIT EXPENSES
 SOME
HIGH RISK EXPENSES
ARE ALWAYS ANALYZED - Travel & Entertainment
- Legal & Professional Fees
- Donations
- Repairs & Maintenance
PRODUCTION CYCLE
INVENTORY
FIXED
ASSETS
PHYSICAL COUNT
COUNT
COMPILATION
(VALUATION)
BOOK-TO-PHYSICAL
ADJUSTMENT
COUNT - CLIENT MUST DO
 BEFORE
THE COUNT -
Housecleaning
 Disposal of damaged/obsolete goods
 Close shipping/receiving &
production around Y/E
 Written count plan/instructions
 Preprinted count tags or lis
(Blind or prepared media?)
 Count team meeting

COUNT - CLIENT MUST DO

DURING THE COUNT
Assigning teams to segregate duties
 Assigning recounters & supervisors
 Maintaining count tag control
 Count & recount
 Resolving counting problems
 Shipping & receiving during count
 Review for completeness
 Collect & account for all tags
 Complete count tag control

COMPILATION - CLIENT MUST DO
 AFTER THE COUNT
 Sort & accumulate count tags
 Transcribe counts from tags to medium
 Adjust counts for in-transit items
 Price items using FIFO or LIFO
 Apply Lower-of-cost-or-market to items
 Extend and foot inventory
 Record book-to-physical adjustments
BOOK-TO-PHYSICAL CLIENT MUST DO
 CALCULATE
ADJUSTMENT
 RECORD ADJUSTMENT
COUNT - AUDITOR MUST DO
 BEFORE
THE COUNT -
Review count plan
 Pre-count tour of facilities
 Identify most valuable items
 Attend count team meeting
 Assure shipping/receiving & production are
closed

COUNT - AUDITOR MUST DO

DURING THE COUNT -

Observe counters
Do test counts
Observe handling of count problems
Observe count tag control process
Observe rust, dust & dents
Obtain shipping/receiving cutoff samples
Count high value items
Calculate rough estimate of total inventory
Review for completeness
Observe collection of & accounting for tags









COMPILATION - AUDITOR MUST DO

AFTER THE COUNT
Do all & only tests for tags
 Tie in counts of high value items
 Test pricing
 Test lower-of-cost-or-market
 Check extensions & footings

BOOK-TO-PHYSICAL ADJUSTMENT
- AUDITOR MUST DO
 CHECK
CALCULATION
 CHECK POSTING
SHIPPING/RECEIVING CUTOFF TESTS
Sample of last shipping/receiving
documents before y/e
 Sample of first shipping/receiving
documents after y/e
 Trace shipments to sales recorded in Sales
Journals
 Trace receipts of goods to purchases
recorded in Purchases Journals
 Consider effect of FOB shipping terms
 Propose adjustment for any errors in cutoff

CUTOFFS
SEE PROBLEM 21-32
ON PAGE 662
AUDIT OF FIXED ASSETS








Differences from audit of receivables
& inventory
Focus on current activity – not whole
balance
Fewer transactions
Large, complex transactions
Peripheral costs
Financing affects value recorded
Liens on assets
Physical existence
AUDIT OF FIXED ASSETS









Vouching sample of additions
Capitalize v. Expense
Tests of depreciation
Tax basis as well as book basis significant
Auditing sample of disposals
Gain/Loss on disposal
Trade-ins v. sales
Periodic physical counts & unrecorded disposals
Impairments in value