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Part 3
Audit Applications
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CHAPTER 4-5-6
Pre-engagement
arrangements
Understand the
client`s business
Obtain the
financial statements
Preliminary analytical procedures
Preliminary materiality decisions
Preliminary risk
assessment
Audit
programs
Audit planning tools
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Obtain an understanding of the client’s internal control
Control environment
Accounting system
Control procedures
Document the environment
Document the system
Document the procedures
Assess control risk (preliminary)
Assess control risk below the maximumPerform test of
control procedures Audit programs
Document the control risk assessment
Not perform
- +
Preliminary risk assessment
Internal Control Evaluation and Control Risk Assessment
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Nature, time, extent
Audit programs
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5Slide B6
消费者供应商
产成品
( 销 售 和 应 收 账 款 循环)
( 存 货 循环 )
( 生 产 循环 )
( 工资循环 )
( 采 购 和 应付账款循环 )
工厂、车间 原材料劳动力
常见的业务循环
融资与投资循环
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划分业务循环
货币资金 投 资 筹 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
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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)
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CHAPTER 9 Revenue and Collection Cycle
• 5.Special Note:
• The Existence Assertion
• Using Confirmations
• Audit of Bank Reconciliation with Attention to Lapping and Kiting
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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
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CreditGranting
STARTHERE
Cash reconciliation
Cash receiptsrecording
Accountsreceivablerecording
Physicalcustody
Sales authorization
CustomerOrders
WarehousingShipping and
Delivery
Bill Customers
Collections
Customerpayments
(cash receipts)
Deposit cashin bank
Cashcustody
Monthlystatements
Salesinvoice
Tocustomer
Tocustomer
Shippingdocuments
Cash receipts
transitionfile
Accountsreceivable
masterfile
Shipping document
transactionfile
Tocustomer
Perpetualinventoryrecords
Cashbalances(account)
file
Shippingdocuments(copy)
Customerorder
Sales invoice(copy)
Bankstatements
Shippingdocuments
(copy)
Customer’spurchase orders,
contracts
Credit files,reports
Accounts/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
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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
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Segregation of responsibility
• authorization
• Custody recording
• reconciliation
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Segregation of responsibility
• A.authorization of sales and accounts receivable
• Custody, recording, reconciliation
• B. Custody of inventory and cash
• .authorization , recording, reconciliation
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Segregation of responsibility
• C.recording(accounting)• .authorization, Custody, reconciliation
• D. Reconciliation• .authorization, Custody, recording
• combination of 2 of more
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( 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.
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Inventorymaster
(subsidiary)
A/Rmaster
(subsidiary)
Creditcheckfiles
Price listmaster
file
Pendingorder
master
Backorder
master
Salesdetail
(journal)
Generalledgermaster
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
•Automatic transfer from pending order to A/R and G/L master files
Terminallogs
Order entry
Customerpurchase order
Sales order
Packingslip
Stockroom
Packingslip
ShippingTerminal
logs
Creditmanagement
Marketingmanagement
Back orderreportInvoices Daily sales
report Sales analysis A/R listingand aging
Monthlycustomer
statements
1 2
3
4
5
6
7
8
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Custody
• Transfer, Packing slip• Storekeepers or the shipping dep change th
e quantity(combine with a recording function)
• “custody” of accounts receivable records to alter the records(combine with authorization and recording responsibility)
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recording
• System:(1)produce a bill of lading shipping documen
t
(2)remove the order from the pending order master file
(3)produce a sales invoice
• authorization,custody, reconcilation
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Inventorymaster
(subsidiary)
A/Rmaster
(subsidiary)
Creditcheckfiles
Price listmaster
file
Pendingorder
master
Backorder
master
Salesdetail
(journal)
Generalledgermaster
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
•Automatic transfer from pending order to A/R and G/L master files
Terminallogs
Order entry
Customerpurchase order
Sales order
Packingslip
Stockroom
Packingslip
Lading Shipping
Terminallogs
Creditmanagement
Marketingmanagement
Back orderreportInvoices Daily sales
report Sales analysis A/R listingand aging
Monthlycustomer
statements
1
2
3 4
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periodic reconciliation
• The sum of customers` unpaid balances with account receivable control account total.
• Age trial balance
• confirmation
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(2)Cash receipts and cash balances authorization
• Custody
• recording
• periodic reconciliation
• (deposit slip 2 to cash remittance lists 3)
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STARTCash received
Prepare cashremittance
list
ApprovediscountsPreparedeposit.
Postto customer
accounts
Prepare cashreceipts journal.Post to general
ledger..
C.R.L. 3
C.R.L. 2Cash 1remittancelist
Money
C.R.L. 3
Deposit sip 2
Deposit slip 1
Approvalof discounts notedon remittance list.
1 2
All cash receipts are deposited.
C.R.L. 3
Deposit sip 2
Monthly bankstatement
Cash receiptsjournal
Individualcustomeraccounts
subsidiary
Accountsreceivable
control
Cashaccounts
Cash 2remittancelist
Cash 1remittancelist
Date Date
Tobank
Preparemonthly bankreconciliation.
2 1
Accounts receivable General ledger
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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
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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.
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Account balancep356
Cash in bank
Accounts receivable
Allowance for doubtful accounts
Bad debt expense
sales revenue
Sales returns, allowances,discounts
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3.Control Risk Assessment
• (1)General control considerations
• (2)detail test of controls
• (3)summary: Control Risk Assessment
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(1)General control considerations
• control
• Segregation of responsibilities. P356
• fidelity bond (persons handle cash)
• detail control checking procedures(1-8)
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Segregation of responsibility
• authorization
• Custody recording
• reconciliation
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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.
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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.
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THE WAY TO OBTAIN information about the control
• internal control questionnaire
(appendix 9A, p397)
• walk-through or sample of one
With enquiry
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(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.
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two direction(E9-5)
sample
sampleA-3-b
A-1-b
Vouch to shipping document evidence
Trace shipping evidence to invoice
Shipping document file
Sales invoice file
•E9-6
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(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.
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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.
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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.
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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
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The structure of casette
• Problem
• method
• paper trail(a set of telltale signs)
• amount
• audit objective
• control
• test of control
• audit of balances
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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.
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Method: D.Bakel` DUTIES
• (1)company cashier--received all the incoming mail payments, the credit card account, t
he 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.
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1. Bank Account (SEC)
Bank Account
(SEI)
Sports Equipments
(SEI)
schools
2. Cash,chequesschool district payment
SEIreceipts
interests
3.fun
ds
paymentsAdd 2% discount
discounts
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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.
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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%)
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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。
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amount
• 6 years
(1)average balance: $150 000
Interest: $67 500
(2)extra discount: $120 000
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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
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• • (1)The Existence Assertion (2)Using Confirmations
• (3)Audit of Bank Reconciliation with Attention to Lapping and Kiting
5.Special Note
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(1)The Existence Assertion • Existence and right assertion
1.recalculation
(prepaid expenses, interest, rent, bank reconciliation)
2.physical observation
(autos,land,building,petty cash, undeposited receipts)
3.confirmation
form
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4.Verbal enquiry
5.examination of documents(vouching)
6.scanning
7.analytical procedures
Audit procedures
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(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)
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(3) Audit of Bank Reconciliations with Attention to Lapping and Kit
ing• Accounts receivable lapping:
credit given to customers for whom no payments were received on the day in question
Cheques listed on Customer creditsA sample of Deposit slips
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收款人B
收款人开户银行 X
付款人A
付款人开户银行 Y
支票
支票存款单2
结算单3
结算单 2
支票1
2
cheque kiting
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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
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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.
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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
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