Slides ENGLISH FOR AUDITING

CHAPTER 3: ENGLISH FOR AUDITING 3.1 Basic Auditing 3.2 Techniques in Collecting Audit Evidence 3.3 Types of Audit Tests 3.4 Internal Control 3.5 Audit of Items in Financial Statements and Business Cycles 3.1 Basic Auditing 3.1.1 Nature of Auditing Auditing is the accumulation and evaluation of evidence about information to determine and report on the degree of correspondence between the information and established criteria Auditing should be done by a competent, independent person Information and Established Criteria To an audit, there must be information in a verifiable form and some standards (criteria) by which the auditor can evaluate the information Criteria FASB IASB Accumulating Evidence and Evaluating Evidence Evidence is any information used by the auditor to determine whether the information being audited is stated in accordance with the established criteria Transaction data Written and electronic Observations Communications Client with outsiders Testimony Competent, Independent Person Judgment and Experience Competence Independence Evaluation of Evidence Proper Conclusion 3.1.2 Types of Audits and Types of Auditors Types of Audits Audit of Financial Statements Operational Audit Compliance Audit Audit of Financial Statements Definition: A financial statement audit is conducted to determine whether the financial statements (the information being verified) are stated in accordance with specified criteria Audit of Financial Statements Example Annual audit of Boeing’s financial statements Information Boeing's financial statements Established Generally accepted accounting Criteria principles Available Documents, records, and outside Evidence sources of evidence 10 Relationships Among Transaction Cycles General cash Capital acquisition and repayment cycle Sales and Acquisition Payroll and collection and payment personnel cycle cycle cycle Inventory and warehousing cycle 92 Audit of the Sales and Collection Cycle 93 Overview of Accounts in the Sales and Collection Cycle Sales Cash in Bank Cash sales Accounts Receivable Sales on account Beginning Cash receipts Cash Discounts Taken balance Sales on Sales returns account and allowances Ending Charge-off of balance uncollectible Bad Debt accounts Expense Sales Returns and Allowances 94 Accounts in the Sales and Collection Cycle Allowance for Accounts Receivable Beginning Uncollectible Accounts Cash receipts balance Charge-off of Beginning uncollectible balance accounts Sales on Sales returns account and allowances Estimate of bad debt expense Ending Charge-off of balance uncollectible Ending accounts balance Bad Debt Expense 95 Business functions Processing Customer Orders Granting Credit Shipping Goods Billing Customers and Recording Sales Processing and Recording Cash Receipts Processing and Recording Sales Returns and Allowances Charging Off Uncollectible Accounts Receivable Providing for Bad Debts 96 Sales Transaction Business functions Accounts   Sales Accounts receivable  Processing customer orders  Granting credit Documents and records    Customer order Sales order Customer order or sales order   Shipping goods Billing customers and recording sales      Shipping document Sales invoice Sales transaction file Sales journal or listing Accounts receivable master file  Accounts receivable trial balance  Monthly statements 97 Cash Receipts Transaction Accounts  Documents and records Cash in bank (debits from cash receipts)  Business functions Accounts receivable  Processing and recording cash receipts   Remittance advice Prelisting of cash receipts  Cash receipts transaction file  Cash receipts journal or listing 98 Sales Returns and Allowances Transaction Accounts  Documents and records Sales returns and allowances  Business functions Accounts receivable  Processing and recording sales returns and   Credit memo Sales and returns and allowances journal allowances 99 Charge-off of Uncollectible Accounts Transaction Accounts  Accounts receivable  Allowance for uncollectible accounts Business functions  Charging off uncollectible accounts Documents and records  Uncollectible account authorization form  General journal receivable 100 Bad Debt Expense Transaction Accounts  Bad debt expense  Business functions  Providing for bad Documents and records  General journal debts Allowance for uncollectible accounts 101 Methodology for Designing Controls and Substantive Tests of Sales Transactions for Sales Understand internal Design tests of controls and control – sales substantive tests of transactions for sales to meet transaction Assess planned control risk – sales -related audit objectives Audit procedures Sample size Determine extent of testing controls Items to select Timing 102 Transaction-Related Audit Objectives for Sales Existence Recorded sales are for shipments actually made Completeness Existing sales transactions are recorded Accuracy Recorded sales are for the amount shipped Classification Sales transactions are properly classified Timing Sales are recorded on the correct dates Posting and summarization Sales transactions are properly included in the accounts receivable master file 103 Direction of Tests for Sales Customer Shipping order document Duplicate sales invoice Sales General journal journal Completeness Existence start start Accounts = receivable master file 104 Types of Audit Tests for the Sales and Collection Cycle Sales Accounts Cash in Receivable Bank Sales Cash receipts transactions transactions Audited by Audited by TOC, STOT, and AP TOC, STOT, and AP Ending Ending balance balance Audited by AP and TDB TOC + STOT + AP + TDB = Sufficient competent evidence per GAAS 105 “Thank you for your attention!” Love what you do! 106 ... department Available Error reports, payroll records, and Evidence payroll processing costs 12 Compliance Audit Definition: A compliance audit is conducted to determine whether the auditee is... accounting firms State auditors Internal auditors 15 Independent auditors Independent auditors are certified public accountants or accounting firms that perform audits of commercial and non-commercial... solely to Congress 18 Internal auditors Internal auditors are auditors employed by a company to audit for the company’s board of directors and management 19 3.1.3 Fundamental Concepts in Auditing