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During the course of the audit, the auditor uncovers a serious misappropriation of cash attributed to the senior accountant. This is required to be communicated to
The audit committee is the appropriate group as it is a representative of governance. Governance communication is established in AU section 380.
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According to AU 380, the auditor must communicate to those charged with governance all items related to the audit except those that:
Auditors must communicate all items to governance except those that the auditors in their professional judgment deem immaterial. Auditors may also be restricted by law in their communication with governance.
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“Significant Difficulties” encountered through an audit that should be communicated to governance include:
AU Section 380 identifies specific instances of communication. The instances included for communication to the government are significant delays, unavailability of information, and restrictions placed on auditors.
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An auditor's communication of internal control related matters noted in an audit usually should be addressed to:
An auditor's communication of internal control related matters noted in an audit usually should be addressed to management and those charged with governance.
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An auditor's communication with those charged with governance is required to include the:
The auditor should discuss with those charged with governance any significant disagreements with management, whether or not satisfactorily resolved, about matters that are significant to the financial statements or to the auditor's report.
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An auditor should communicate a deficiency to a non-issuer client's management only either orally or in writing when there is a:
Communication of deficiencies in internal control varies on reporting to management. Significant deficiencies and material weaknesses for example need to be communicated in writing.
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The warehouse manager is responsible for ensuring that high-end merchandise is in the locked section of the building. This is an example of
Physical control provides a physical barrier to the asset. They consist of policies such as insurance, or kinetic barriers such as locks, secure areas, etc.
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A physical inventory is taken on a “cut-off date”. This procedure is necessary to ensure.
Taking a physical inventory at a cut-off date ensures that all of the inventory that is appropriate to be reported will be included in the financial statements. The auditor sets the cut-off date and traces the amount to the accounting records to ensure that the records include all the inventory.
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A ___________ inventory system is best used for high dollar items
A perpetual inventory provides a real time record of inventory values. Items purchased are recorded to the inventory account at the time of purchase. High dollar inventory items are particularly important to properly value the inventory account.
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Inquiries of warehouse personnel concerning possible obselete or slow moving inventory items provide assurance about management's assertion of:
Inquiries of warehouse personnel concerning possible obselete or slow moving inventory items provide assurance about management's assertion of valuation (has the inventory been properly valued and recorded.)
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An auditor generally tests the segregation of duties related to inventory by:
The independent auditor's direct personal knowledge, based on personal inquiry and observation, are auditing procedures commonly used to test the segregation of duties.
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Of the following duties included in the inventory cycle, which should be segregated to maintain proper internal controls?
All of these duties, in addition to shipping, would need to be segregated in order to maintain proper internal controls.
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An important review procedure for investments is to
The purpose of the review procedures is to ensure that the transaction recorded follows policies and has an audit trail. The auditor will ensure that the underlying detail supports the asset being recorded.
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The investment financing cycle refers to:
The investment financing cycle covers the firm’s portfolio of assets on both a long term and short-term basis. This cycle covers the management of excess assets to create a return.
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In auditing the investment cycle the auditor would most likely
All of the above are necessary when auditing the investment cycle. Every cycle needs controls to determine transactions are properly recorded, measured, and disclosed.
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In auditing intangible assets, an auditor would most likely review or recompute and determine whether the amortization period is reasonable in support of management's financial statement assertion of:
Assertions about valuation and allocation deal with whether assets, liabilities, and equity interests have been included in the financial statements at appropriate amounts. Recalculation of the amortization and review of the amortization period would test the valuation and allocation assertion.
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In confirming with an outside agent such as a financial institution that the agent is holding securities in the client's name, the auditor most likely gathers evidence in support of management's financial statement assertions of existence and:
A confirmation from an outside agent indicating that securities are being held in the client's name provides evidence with respect to both the existence assertion and the rights and obligations assertion.
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The investment cycle requires strong segregation of duties over all of the following except:
In any business process or environment, record keeping should be separate from authorization which should be separate from custody.
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