Chapter Five – Automated Tools

Summary

This Chapter describes Grant Thornton's automated tools available to assist in

the planning, execution, control, completion and administration of audits and
other engagements. This Chapter also summarizes the types of functions
available in the software and their use in various engagement activities.

Introduction
5.1 Automated tools are designed to enable the audit team to be efficient and
effective. Although primarily designed to assist in audits, automated tools can be
used in other types of engagements as well. Automated tools offer a number of
benefits, including:
 cost-effective auditing
 tailored audit programs for a wide variety of industries
 consistent performance
 ability to analyze a large volume of transactions or data that
is not feasible to analyze manually
 reduction or elimination of mechanical tasks

5.2 Grant Thornton encourages the use of electronic workpapers as much as

practicable therefore; audit teams should request management to provide their
schedules, reconciliations, and source documentation in electronic format.

5.3 The automated tools discussed in this Chapter are:

 Voyager
 TBeam
 Voyager Information System
 GTI Client Acceptance
 Consultation
 Grant Thornton Electronic Library
 Pentana disclosure checklist
 IDEA
 Microsoft Excel

Voyager
5.4 Voyager is a software application developed by GTI to implement the
Horizon methodology. In particular, Horizon tailors the audit approach for a
particular engagement to the unique risks and circumstances of the specific client
situation. Voyager is central to Horizon because it enforces the Horizon
methodology.

5.5 Voyager is required for all audit, review, and compilation engagements.
5.6 Voyager provides the ability to create industry-specific engagement
programs from one national masterfile that is developed and maintained by each
GTI member firm. The first step in effectively and efficiently tailoring audit
procedures is selection of the appropriate industry upon creation of the Voyager
file.

5.7 The following industries are currently available:

 Commercial
 Manufacturing
 Depository institution
 Construction
 Not-for-profit
 Governmental
 Health care
 Energy
 Software
 Brokers and dealers in securities
 Investment partnership
 Mortgage banking
 Insurance
 Employee benefit plan
 Service
 Real estate

5.8 The audit team then uses Voyager’s automatic tailoring functionality to
customize the audit program to the specific client circumstances. Automatic
tailoring works primarily in the following ways:
 Selecting the appropriate flags upon file creation, for
example:
 First year
 Public
 Internal control audit
 Completing Voyager’s built-in tools such as:
 Organization Structure
 Revenues
 EPF
 IT Profile
 Accounting System
 Materiality
 Risk Indicators
 Linkage – Matters to Financial Statement Risks
 Assertion-Level Risk Assessments
 Answering global tailoring questions (for example, “Will the
work of an expert be used? Yes / No”) or cycle-specific tailoring
questions, (for example, “Does the entity maintain significant cash
on hand? Yes/No”)

5.9 Finally, the audit team uses Voyager’s direct tailoring feature to further
customize the audit procedures. Direct tailoring may include deleting general file
sections or procedures that are not applicable, adding procedures or modifying
the wording of existing procedures. Voyager further facilitates direct tailoring by
allowing the audit team to append cycles from another industry.

5.10 The audit team uses Voyager in all aspects of the engagement: planning
and risk assessment, execution, completion, documentation, and management.
Electronic documents contained within the Voyager engagement file become the
primary means of documenting the audit work. Voyager allows the audit team to:
 complete or update the documentation of the understanding
of the entity and its environment
 automatically tailor the substantive audit procedures and
questionnaires by answering tailoring questions for the entity as a
whole and for individual cycles
 identify matters that affect the financial statements,
significant cycles and their related financial statement risks
including those that have a reasonable possibility of causing a
material misstatement in the financial statements
 select between automated procedures (those completed with
IDEA) and manual audit procedures
 determine the timing of the audit procedures to include
interim procedures, where appropriate, and add procedures to roll
forward the results to the balance sheet date
 directly tailor individual procedures by adding, deleting, or
modifying the procedures to reflect the specific client situation
 review the tailoring of all changes made to the audit program
to assist in the approval process
 approve the tailored audit program
 record team members and control electronic signatures and
responsibilities of the audit team
 make necessary changes to the approved audit procedures
(these are logged for later quality control review)
 attach supporting electronic memos and schedules
(references) and document external workpaper references
 electronically sign-off procedures, memos and references as
they are completed
 create and manage review notes
 distribute (check out) portions of the engagement file to
different audit team members and consolidate (check in) the audit
program into a completed engagement file
 archive file for rollforward next year and long-term storage
 rollforward an existing, tailored engagement file for a
subsequent year engagement

5.11 Voyager also provides the audit team the ability to document, evaluate
and test internal control. Voyager’s approach to internal control embraces the
framework described in the international auditing standards, which encompasses
controls at both the entity level and activities level of client organizations. Audit
teams use Voyager to:
 document entity-level activities, processes and controls
(control environment, monitoring, information and communication,
information technology and financial reporting)
  identify very and somewhat important processes
 document activities-level processes and controls
 document the IT profile, including the IT applications integral
to the financial reporting process
 document service organizations used
 assess design effectiveness of both entity-level and
activities-level controls
 document the results of walkthroughs performed
 identify key controls for the financial statement and/or
internal control audit
 select an effective and efficient approach to test key controls
 generate the tests of controls programs
 document the results of tests of controls
 evaluate control findings using Design Effectiveness
 accumulate control deficiencies on the Summary of Control
Deficiencies

TBeam
5.12 Many different automated trial balance and workpaper preparation
software packages exist today. These programs are designed to automate many
functions, enabling audit teams to be more cost effective and efficient. The use of
this type of software package is encouraged to perform functions such as:
 importing a client's data automatically
 assigning accounts to lead schedules
 assisting in performing period-to-period comparisons
 producing trial balances and lead schedules
 linking to other applications, such as word processing for the
production of financial statements and spreadsheets for further
analysis
 posting adjusting, passed, reclassification and eliminating
journal entries
 producing consolidated workpapers

5.13 TBeam is a software application developed by GTI that provides an audit

team with the capabilities described above. In addition, it provides audit teams
with the ability to integrate trial balance lead schedules and other workpapers
with Voyager.

Voyager Information System

[Include this section if your firm has implemented the application]

5.14 VIS is a database system designed to collect certain information contained

in Voyager engagement files for use in managing and monitoring the firm’s
practice. This information is transferred to the VIS database when certain defined
events occur during the engagement. Those events include:
 completing the Organization Structure information
  determining EPF
 releasing the report
 archiving the completed file

5.15 The information in the VIS database can be viewed using the VIS Viewer
application. The VIS Viewer assists audit teams in the following areas:
 documenting approval of EPF assessments
 documenting assignment of quality control reviewers
 generating email notifications for engagements with
unapproved EPF assessments

5.16 In addition, the VIS Viewer provides an effective and reliable method for
tracking engagements to determine whether engagement files are archived in
accordance with professional standards. This is done by:
 tracking audit engagements from the report release date
 providing a complete history of all archived files stored within
VIS
 generating email notifications for engagements after 30 days
if the file is unarchived
 continuing to send email notifications until the file is archived

5.17 The automated email notifications in VIS to partners and audit teams, as
previously discussed, are vital to maintaining an accurate record of engagements
and monitoring compliance with firm policies and professional standards,
including those relevant to record retention (file archiving). Noncompliance with
the firm’s archiving policies is a violation of professional standards and securities
laws. Therefore, it is imperative that all automated emails get the prompt
attention of the persons involved.

5.18 The primary source of data in VIS is the Organization Structure tool in
Voyager. To maintain data integrity, audit teams should diligently review the
information in Organization Structure and correct inaccurate or incomplete
information prior to transmission. The primary areas of concern are:
 client names with spelling and typographical errors and
instances where the entity’s legal name is not used
 partner names and email addresses improperly formatted
and spelled (audit teams should use the import function on the
Engagement Team screen to obtain names and email addresses).
When incorrect email addresses are transmitted, VIS is unable to
send email notifications to the partner.
 dates entered incorrectly cause tracking issues because the
VIS engagement tracking system and related email notifications
rely on accurate dating
 names of entities missing or entered incorrectly. Within
Organization Structure, audit teams should enter all components
and related entities which includes subsidiaries or entities
controlled by the client, investees (where it has both significant
influence and a material investment), and the parent entity (where it
has both significant influence and a material investment).
5.19 The PSP and their designee (Client Administrator) are responsible for
monitoring the accuracy and completeness of the VIS records for their office.
When errors and omissions are found, the PSP or Client Administrator should
notify the appropriate persons so corrections can be made in Voyager
Organization Structure information and resubmitted to VIS.

Creating New Voyager Files versus Using the Rollforward Option

5.20 Only in exceptional circumstances (e.g., the prior year's file is corrupted or
there is a change in the level of service) should an audit team create a new
Voyager file rather than rolling forward the prior year’s file.

5.21 There are two very important reasons for doing this:
 when a new engagement file is created, all information must
be re-entered and all direct tailoring is lost. This is highly inefficient.
 the engagement tracking history in VIS is lost whenever a
new record is created because the duplicate record must be
removed.

5.22 Therefore, before creating a new engagement file instead of rolling

forward the prior year file, a member of the audit team should contact A&A
Software Support to determine the appropriate course of action.

GTI Client Acceptance

[Include this section if your firm has implemented the application]

5.23 GTI Client Acceptance enforces the firm’s client acceptance policies
through efficient, automated documentation and approval procedures. The
software resides on each user’s computer, which interacts and updates a
database that resides on the firm’s network. This enables authorized individuals
and firm management to access, review, and approve or decline client
acceptance records. GTI Client Acceptance provides additional efficiencies
because it links to Voyager. The audit team can import client information and risk
factors noted during the acceptance process as well as the final report.

Consultation

[Include this section if your firm has implemented the application]

5.24 The firm’s Consultation software automates the process of documenting

and approving consultations on significant audit, accounting and independence
issues, primarily with the NPSG. Individuals involved in a consultation matter
enter, edit and approve consultation documentation in a database. This software
is required to document consultations with the NPSG, but can also be used for
other consultations occurring within an operating office.
Grant Thornton Electronic Library

[Tailor paragraph 24-26 to reflect your practices with respect to electronic

library]

5.25 GEL is an electronic library that contains firm, PCAOB, AICPA, IFAC and
SEC electronic literature. Through NextPage, a search and retrieval software
program, all sections or paragraphs containing a specific word, a combination of
words or an exact phrase can be searched. These searches can be performed in
one specific area or simultaneously through all of the literature. The Quick Find
interface allows users to access content through a categorized listing of topics by
author. Content can also be accessed through the traditional Table of Contents.

5.26 NextPage Solo technology includes all of the literature on each user’s
computer. This enables the NextPage search engine to be used without being
online. Users can also access GEL through KSource. The content for GEL is
periodically updated (ordinarily monthly). Users receive GEL updates
automatically when they connect to the firm network.

5.27 Some of the most frequently used items in GEL includes:

 Manuals:
 Audit and Assurance Services Manual
 Independence and Ethics Manual
 Guides:
 Consultation User Guide
 GTI Client Acceptance Software User Guide
 VIS User Guide
 Plain English Guide to Independence Requirements in the
United States
 Communications:
 Audit Services Bulletins
 New Developments Summaries
 APFYIs
 Letters, Forms and Templates
 Audit Engagement Letters
 Audit Representation Letters
 Communications with Those Charged with Governance
 Harvest Investments
 Practice Aids
 Confirmation Letters
 Group Audits (Component Evaluation worksheet and CAAM)
 Effective Date Schedule
 Professional Standards
 AICPA libraries (Professional Standards, Audit and
Accounting Guides, Technical Practice Aids, and AICPA
Practice Aids)
 PCAOB (Final Auditing Standards, Staff Questions and
Answers, Staff and Audit Practice Alerts)
 SEC (SEC Handbook, Financial Reporting Manual)
  IFAC (Handbook of International Quality Control, Auditing,
Review, and Other Assurance, and Related Services
Pronouncements)
 Industry Practice Aids
 Financial Services (Reg AB, HUD Submission Instructions)
 Governmental and Not-for-Profit (OMB Circulars, Yellow
Book - Government Auditing Standards, OMB A-133
Compliance Supplement)
 Communication Topical Groups
 Business Combinations
 Financial Reporting Tools
 Revenue Recognition

Pentana
5.28 Pentana is a software tool that generates a financial statement disclosure
checklist to allow the audit team to assess whether the financial statements are
in accordance with International Financial Reporting Standards. As with Voyager,
initial questions allow the checklist to be tailored to the client's circumstances.
The tailored checklist can either be completed electronically on screen or printed
and completed manually. GTI has an international license for Pentana.
Information about this license is available on GTInet. Pentana should be used for
all engagements where IFRS is the accounting framework.

IDEA

General

5.29 Computerized financial applications provide an opportunity to use CAATs.

Several factors favor the use of computer-assisted auditing:
 widespread use of computerized financial applications
 ease of techniques to transfer data from the client’s
applications to our computers (this makes the use of CAATs
practical for both small and large engagements)
 ability to use Voyager’s “automated” procedures, which is
the default setting for the performance of all substantive procedures
and is designed for increased efficiency and effectiveness
 ability to analyze the entire population instead of using
sampling techniques
 ability to perform more robust fraud procedures where the
audit team identifies fraudulent financial reporting or
misappropriation of assets risks

5.30 Exhibit 5.1 contains a list of possible CAATs.

5.31 When developing CAATs, it is important for the audit team to define the
objective of the procedure prior to initiating the test. Any application of a CAAT
should be under the direction and supervision of a member of the audit team that
is knowledgeable about the area.

Using IDEA

5.32 GTI obtains an international license for IDEA, a data interrogation audit
software program. Benefits of using IDEA include:
 efficiency - the amount of audit time can be reduced
 effectiveness - allows a more comprehensive analysis and
allows us to focus on more important items
 independence - reduces our reliance on client information
technology personnel
 consistency - procedures can be performed more
consistently year to year

5.33 Planning is required to use IDEA effectively and efficiently. Audit teams
should collaborate with the client to determine whether the client can provide the
requested electronic files timely. This communication is of particular importance
when the audit team requires electronic files from prior periods.

5.34 The testing of computer-assisted procedures during planning will expedite

the processing of interim or year-end data. For example, if the audit team plans
to use IDEA to select a sample of December accounts receivable balances, they
should obtain a copy of the October or November data file; define the record
layout in IDEA, if necessary; reconcile control totals and prepare the layout of
any confirmation forms to be used well before the December amounts are
available. Testing is particularly important the first time IDEA is used.

5.35 The purpose of using IDEA is to enhance effectiveness, efficiency or

otherwise increase the value of the audit. The audit team achieves these
objectives by applying their creative abilities to use the following functions:
 record extraction
 file indexing, sorting and summarization
 field statistics
 file comparison
 sampling
 calculation
 exporting
 selecting journal entries for testing using Smart Analyzer

Record Extraction

5.36 Record extraction scans data files for specific extraction or exception
criteria to extract all records which meet the specified criteria. Once extracted,
exceptions are investigated for resolution.

5.37 Examples where extracting can be used include scanning for:

 accounts receivable balances for amounts over the credit
limit
  inventory items with negative quantities and unreasonably
large balances
 unpriced inventory items (items with quantity on hand but
have no unit cost)
 transactions with related parties

File Indexing, Sorting and Summarization

5.38 IDEA can index, sort and summarize data in many ways. This allows the
audit team to prepare analyses or to simulate the client's data processing
systems. Other analyses can also be performed such as gap detection, duplicate
detection, or summarization once the data is sorted on a key (field). Examples
are:
 summarizing detailed transactions by customer account
number
 summarizing general ledger trial balances
 summarizing inventory turnover statistics for obsolescence
analysis
 sequencing inventory items by location to facilitate physical
observations
 identifying gaps in inventory tag numbers
 identifying duplicate invoice numbers

Field Statistics

5.39 Field statistic capabilities of IDEA provide the audit team with the ability to
obtain statistics on numeric fields within a data file. Field statistics include the
following information for the fields selected:
 net value
 absolute value
 number of records
 number of zero items
 total of all debit values
 number of debit records
 total of all credit values
 number of credit records
 number of data errors
 number of valid values
 average value
 minimum value
 maximum value
 record number of record of the minimum value
 record number of record of the maximum value
 standard deviation
 variance
 skewness
 kurtosis

5.40 Examples of the use of field statistics are:

  recalculating the totals (proving mathematical accuracy) of
accounts receivable, accounts payable, or inventory listings
 obtaining information about the accounts receivable listing
and determining effect of credit balances for possible
reclassification
 analyzing information to determine sampling approach

File Comparison

5.41 In situations where records in separate files contain compatible

information, IDEA may be used to compare the files to determine if the
information agrees.

5.42 Examples include:

 changes in accounts receivable balances between two dates
with details of sales and cash receipts on transaction files
 payroll details with personnel records
 current and prior period inventory files to assist in reviewing
for obsolete or slow-moving items
 comparing last year’s payables with this year’s to identify
potentially understated accounts

Sampling

5.43 IDEA has the capability to select samples using random or statistical
sampling methods. Examples are:
 accounts receivable balances for confirmations
 inventory items for observation
 inventory items for price testing

Calculation

5.44 IDEA can test the accuracy of computations and perform quantitative
analyses to evaluate the reasonableness of client representations. Examples are:
 extensions of inventory items
 reasonableness of depreciation expenses, accumulated
depreciation and useful lives
 the accuracy of sales discounts
 interest

Exporting

5.45 Exporting allows the audit team to take an analysis that they performed
using IDEA and export information to another application. For example,
information can be exported to a spreadsheet such as Microsoft Excel for further
analysis, client presentation or inclusion as a workpaper in the Voyager file.
Selecting Journal Entries for Testing using Smart Analyzer

5.46 The firm also licenses Smart Analyzer, an IDEA add-in that includes pre-
programmed routines to analyze data. Smart Analyzer interrogates data (e.g.,
general ledger, accounts receivable, inventory, fixed assets, and accounts
payable) without manually creating formulas or scripts. The most common use is
for journal entry testing. Refer to Chapter 20 for additional information on using
Smart Analyzer to select journal entries for testing.

Documentation

5.47 When using IDEA, it is important for the audit team to appropriately
document their work. Reviewers should be able to determine what procedures
were performed and the results of such procedures. Typically these requirements
are satisfied by including the field statistics and record extractions generated
from IDEA. This documentation can easily be transferred to Excel and attached
to the appropriate Voyager procedure. It is unnecessary to include the imported
data file and the history logs in the Voyager file in the audit documentation.

Microsoft Excel
5.48 Excel, which is a full-featured spreadsheet package, allows the audit team
to perform the following:
 prepare detail workpapers (e.g., property, plant and
equipment, long-term obligations, debt maturity schedules, etc.)
 perform analytical procedures
 prepare graphic presentations of analyses and relationships

Computer Security
5.49 Computer security is a broad topic. Everyone is responsible for protecting
client and firm information from security threats. Personal computer security
threats include:
 unauthorized access to data
 data loss
 computer viruses
 Internet hacking

Unauthorized Access to Data

5.50 The threat of unauthorized access to data can occur at three levels:
access via the Internet (discussed below), access to information on the
computer, in general, and access to the specific computer data files.

5.51 Power-on passwords and using the security features of Windows are two
ways to control access to the information on the computer in general. Password
protecting files provides additional control for sensitive files.
Data Loss

5.52 Anyone who has used a computer knows that loss of data is a threat.
There are several techniques available to mitigate this risk. One of the most cost
effective is to periodically create a copy of files on media external to the
computer. At the end of each workday, the audit team should create a “package”
of the Voyager file and save it onto an external media device. Voyager also has a
“backup” function that can be used periodically throughout the day. These
backups should be deleted at the end of the day after the package function is
used to create a copy of the file on external media.

Computer Viruses

5.53 Computer viruses are commonplace. Their threat ranges from

inappropriate screen messages to a complete and irretrievable loss of data and
software. Use of antivirus software is the principal means of controlling this
threat.

Internet Hacking

5.54 The threat of Internet hacking includes destruction of the computer

content, use of the computer for inappropriate purposes or gaining access to the
information contained on the computer. The threat occurs whenever the
computer is connected to the Internet either directly or through a network.
Protection at the network level is usually achieved through the use of network
firewalls. However, computer users should be aware that the threat also exists
when they connect the computer directly to the Internet (e.g., using a home
Internet Service Provider) or through an unprotected network (perhaps a poorly
controlled client network). An effective way to control this threat is by using
firewall software on each computer.

Ethical Use of Computer Software

5.55 Software tools are licensed or developed at significant cost. They are for
Grant Thornton business only and must be returned in the event of separation.

5.56 GTI member firms pay license fees not only for the various accounting and
auditing software products described herein, but also for other software such as
Microsoft Windows and various other applications. These licenses limit the
duplication, distribution and resale of software. Generally, these licensing
agreements specify the number of machines on which the software is to be used.
It is Grant Thornton's policy to appropriately license all software and strictly
comply with all license agreements.
Exhibit 5.1 – Potential Computer-Assisted Audit Techniques
5.57 Presented below are audit procedures where the audit team may wish to
consider applying computer-assisted audit techniques.

Commercial Entities

Cash
 reconcile intercompany cash transfers
 reconcile disbursements to the voucher register
 total and clear the outstanding checklist

Revenue

Accounts Receivable
 test the mathematical accuracy of totals and extensions of
the year-end balances
 age the file
 identify accounts (or invoices) within specific aging
categories and over specific monetary limits
 identify unusual invoices, refunds, debit memos, etc.
 test for new, large monetary/volume accounts
 identify account balances exceeding their credit limit by a
specific percentage or amount
 identify accounts with large past-due amounts
 select accounts or invoices for confirmation by sampling
 sort and summarize by the customer number or type of
account, type of collateral, or sales terms
 using weekly/monthly update files, move accounts
receivable from the confirmation date to year-end. Select
transactions for additional testing from these files.
 merge the accounts receivable file and the sales file and
perform cut-off tests and ratio analyses
 apply cash receipts, subsequent to the confirmation date, to
accounts receivable to determine uncollected receivables or
receipts for which no receivable was recorded
 merge interim balances with year-end balances to produce
either a comparative trial balance or accounts with changes greater
than a specified percent
 review potential problem areas:
 excessive adjusting entries to accounts
 duplicate:
 invoice numbers
 debit/credit memo numbers
 account numbers
 mailing addresses
 customer names
 age and stratify credit limits and/or balances
  cut-off test by matching year-end invoices with subsequent
credit memos
 balances in excess of credit line
 match the detail and master file record, and list the
unmatched detail records
 prepare confirmation letters using master address file
 analyze receivable accounts by type of receivable
 identify large receivable write-offs during the period for
verification and evaluation of existing receivables
 verify calculation of unearned finance charge reserve
included in receivables
 identify the number and amount of loans receivable that
have been extended or refinanced prior to year-end
 analyze receivable write-offs by type or location
 sample individual open accounts receivable items
 automated printing of selected items list and address
envelopes for confirmations
 automation of confirmation statistics
 age by invoice date, date of last payment, customer, line of
business, type of open item
 histogram customer accounts, or open items
 apply subsequent transactions to the selected account
balances or open items in the file
 match cut-off information to the open items in the file
 compare open accounts receivable items at confirmation
date to open items at a subsequent date to determine changes
caused by subsequent transactions

Sales
 total the sales transactions file or year-to-date sales file
 summarize sales, by the respective account distribution, for
reconciliation to the general ledger posting and accounts receivable
file
 match the sales records to the accounts receivable sales
posting
 test for unusually large amounts
 test for missing or duplicate invoice numbers
 compare invoice dates to the month recorded and identify
potential cut-off problems
 test sales invoices for:
 mathematical accuracy of totals and extensions
 unit price
 discount allowed
 analyze by market, product line, customer, cost, sales
commission, etc.
 select a sample for testing
 comparison of revenue information to industry guidelines or
trends
 calculation of unearned revenue for sample periods
 consolidation of divisional or subsidiary financial accounts
  computation of cost of sales based on items sold and
comparison to client file
 comparison of profit and loss account balances between two
periods showing percentage and absolute change

Cash Receipts
 total the cash receipts file
 summarize cash receipts by the respective account
distribution for reconciliation to general ledger posting
 select a sample of receipts for testing
 summarize/segregate receipts by type
 match cash receipts to the receipts applied to the accounts
receivable file
 test for unusually large receipts, unusual classifications or
allowances, or discounts
 analyze income and expense relationships for trends among
years

Inventory Purchasing

Inventory
 test mathematical accuracy of totals and extensions
 select a sample for price testing using large monetary
balances, a systematic sample, or monetary-value estimation
 physical count files:
 test for duplicate or missing tag numbers
 merge inventory observation test counts with the physical
count
 summarize by product number, location, type, etc.
 price the physical count file and compare to the general
ledger or book/physical adjustment
 perpetual inventory - use sampling programs to select and
print a sample for physical testing
 master cost file:
 test for duplicate part or item numbers
 select a sample to test the reasonableness of unit costs
 segregate unusual increases/decreases in standard costs;
merge the updated file with prior period files and print items with
significant fluctuations
 merge with the year-end inventory file for price testing
 lower of cost or net realizable value tests (based on the
average selling price, current year standard costs, etc.)
 test for obsolete/slow-moving items; excess inventory:
 use the date of the last shipment or convert the current
year's sales monetary value to quantities. Identify on-hand
quantities in excess of the normal turnover
 merge the inventory file with the sales file. Calculate the
number of months-on-hand supply and compare to the prior
usage.
  identify potential obsolete inventory items by printing those
items with little or no current-year sales
 turnover analysis
 compute the gross profit, or potential gross profit, by product
line or in total
 summarize by product, location, classification, etc.
 LIFO calculations:
 calculate the base and current year's extensions
 summarize and compute the current year's index
 compute the LIFO value for each LIFO pool
 compare base prices from the prior year's files
 calculate the percentage change for inventory items, and
print those outside the range for:
 inventory level
 sales level
 change in the standard cost
 change in the average sales price
 test the inventory cutoff by comparing the last receipts to the
purchases register
 analyze accumulation of costs used to value finished goods
inventories
 comparison of standard and actual costs
 review the costed inventory for items with quantity and no
value or value and no quantity
 review for items with labor hours or value and no overhead
 sort the priced inventory in descending order of value or
exception items with the largest percentage change first
 using other information in the inventory master record,
extract any item with yearly usage smaller than on-hand quantity

Payables
 total the trial balance
 match address of vendors to a file of employee addresses
 summarize the payables based on expense account
 develop or test history by vendor (using 12-month files)
 search for unrecorded liabilities
 sample additions to accounts payable subsequent to the cut-
off date
 merge cash disbursements subsequent to the cut-off date
with accounts payable
 investigate unmatched disbursements
 review potential problem areas
 excessive adjusting entries
 duplicate:
 invoice numbers
 purchase order numbers
 account numbers
 mailing addresses
 vendor names
 age debit items
  review expense accounts for recurring monthly charges not
established as accounts payable at year-end
 match of purchase order and accounts payable files
 summarization of disbursements by month to validate check
register totals
 verification of accounts payable cut-off by comparison of
receipt date to year-end date
 age payments for both transactions and year-end balances

Cash Disbursements
 total the cash disbursements file
 summarize cash disbursements by the respective account
distribution for reconciliation to the general ledger posting
 select a sample of disbursements for testing
 summarize/segregate disbursements by type
 match cash disbursements to the disbursements applied to
the accounts payable file
 test for unusually large disbursements or classifications
 test for missing or duplicate check numbers
 test for duplicate payments of invoice numbers or purchase
order numbers

Capital Assets

Property, Plant, and Equipment

 test the mathematical accuracy of totals and extensions
 calculate book and tax depreciation - compare the results to
the client's calculations
 compare accumulated depreciation to cost, and determine
that no assets are depreciated greater than cost
 summarize the activity of the accounts by type
 summarize by classification, location, etc.
 select samples for testing - additions, retirements, etc.
 test for duplicate or missing asset numbers
 select a sample of disbursements for testing repairs and
maintenance
 analyze the intercompany profit on equipment sales
 recalculate expense and reserve using replacement costs
 comparison of useful lives within asset categories

Debt

Notes Payable/Short Term Debt

 total and summarize the year's activity
 calculate the following:
 average interest rate during the year
 average short-term debt outstanding during the year
 weighted average interest rate
 largest month-end balance
Financing

Equity
 analyze, select, and confirm shareholders’ accounts
 test stock options or stock appreciation rights
 total and list outstanding shares by shareholder
 review the activity for officers and selected employees

Employee Compensation

Payroll
 total the payroll transactions trial balance
 summarize payroll transactions by the respective account
distribution for reconciliation to the general ledger and inventory, or
cost of goods sold, charges
 recompute the computation of gross pay, deductions, and
net pay
 merge the payroll journal files with the payroll master files
and test for exceptions:
 difference in the number of exemptions
 gross pay in excess of a specified amount
 differing hourly/salary rates
 payroll deductions differing from a specified percentage
 maximum government insurable earnings exceeded
 duplicate or missing records (employee numbers)
 hours worked greater than a specified amount
 identifying or purging of master records for terminated
employees
 compare employee and vendor addresses
 create file of employees with no withholdings, no insurance,
and/or no participation in other employee benefits
 create file for testing of valid Social Security numbers
 select a sample for testing

Operating Expenses
 select journal entries for testing
 print the year's activity for significant operating accounts
(e.g., rent, taxes, repairs and maintenance, and legal and
professional fees)
 merge with the prior year and create a comparative trial
balance
 test for unusual journal entries with these attributes:
 accounts with numerous entries where such activity is out of
the ordinary
 accounts with large, out-of-the-ordinary entries
 prepared by someone with few entries
 recorded by someone not expected to record journal entries
 prepared by senior management or IT staff
 unusual posting date or time
  description not included
 includes round numbers

Income Taxes
 prepare trial balances in tax grouping sequence
 calculate income tax provision
 review accounts for non-allowable deductions

Financial Institutions

Loans

By Bank or Branch
 total the outstanding balances
 sort trial balances - by account number, by location/ branch,
or by descending balances
 calculate unearned amounts (interest/discount, insurance)
 compare the calculated unearned amounts with the client
amounts age accounts
 sort and summarize by various installation codes - type of
security, purpose code, class-of-loan, credit rating, borrower, etc.
 calculate maturity schedules
 extract charged-off loans or bankruptcies, and test (calculate
the various percentages, sort by charge-off dates, etc.)
 select loans for confirmation using sampling
 extract delinquent accounts issued prior to a specific date
 extract loans for which the latest payment was less than the
regular payment amount
 calculate extensions of terms for loans which the term was
extended by more than a specified number of months
 select a sample of new or purchased loans since the last
audit to be tested for appropriate documentation, etc.
 extract loans with a principal balance in excess of a specified
amount
 extract loans with unusual payment terms
 extract loans with unusual interest rates
 test for loans for which the number of payments plus the
number of months extended does not agree with the next due date,
or test for loans for which the number of payments does not agree
with the related reduction of principal
 perform various analyses of past-due accounts
 perform various analyses of unearned income
 calculate accrued interest
 test for liability in excess of the institution's lending limit
 summarize loans to customers. Compare total loans to
customers' credit limits on the master file. Extract accounts with
balances greater than a specified amount over the credit limit.
 prepare a frequency distribution by monetary amounts,
interest rates, or maturity dates
Foreign Loans
 summarize loans by the currency type, and extract long and
short positions in each currency

Real Estate Mortgage Loans

 total the real estate mortgage loan file for principal and
escrow balances
 prepare a frequency distribution of loans by monetary value
of principal outstanding
 identify and list all loans past due for a specific number of
days
 extract prepaid accounts
 test the daily interest accrued
 select a sample for confirmation

MasterCard, Visa
 total the file
 identify and list all accounts past due for a specified length of
time
 identify and list all accounts with balances in excess of credit
limits
 test for specific conditions (e.g., excessive
adjustments/credits) in employee accounts
 select a sample for confirmation
 recompute the current month's interest charge

Investment Securities
 calculate accrued interest receivable
 test amortization of premiums and discounts
 extract securities that are not of an authorized investment
grade
 calculate average yields by classification
 calculate maturity schedules
 select samples of security purchases and sales since the
last audit date for transaction testing
 merge with revenue data and flag investments for which no
dividends or interest has been received
 select samples of investments for fair value tests
 price the investments by merging the investment file with the
security pricing file
 total the securities file
 prepare a frequency distribution of the market value, interest
rates, or maturity dates
 test computed interest income on investments to amounts
actually received
 test dividends declared per published services to amounts
actually received
Deposits
 list balances - by branch or in total
 select a sample of account balances for confirmations
 recompute the interest on accounts
 recompute service charges on accounts
 select a sample of new or closed accounts for testing
 test for unusual accounts - continuous overdrafts, dormant
accounts, etc.
 test for any below-minimum account balances incorrectly
exempted from service charges
 for inactive accounts - confirm account relationships
 review for excessive adjustments or activity to accounts
 prepare a frequency distribution of accounts by amount,
interest rates, or maturity dates

Other Deposit Activities - Official Checks (e.g., cashier’s, certified, dividend)

 select a sample to determine clearance, length of time
outstanding, etc.

Trust
 select samples to determine if:
 the trust department is buying the types of securities
stipulated in the trust instruments
 security acquisitions are approved
 trust income is being paid on schedule to beneficiaries

Pension and Similar Trusts

 select a sample of asset transactions for testing
 select sample for testing pension calculations, payments,
etc.
 year-end assets:
 total the schedule of investments
 test the accrued interest calculations
 select a sample for fair market value tests
 select a sample for other income tests
 edit the participants' file for non-allowable data (e.g., invalid
age, years of service, gender)
 fund balance - calculate the interest and capital gain
income/loss distributed to participants' accounts
 Investment Securities - (See Listing Under Financial
Institutions)

Brokers and Dealers in Securities

 customer statement file:
 recalculate the customer statements
 total the money balance and trace to the money line
 match positions to the summarized customer positions on
the stock record
 select customer accounts for confirmation
 stock record file:
 balance the file and list out-of-balance positions
 select street-side positions for counts or confirmations
 test the file for various SEC rules and regulations
 value securities by merging the stock record file with a price
tape
 list inventory and investment accounts
 review the file for invalid customer accounts or security
numbers
 print a listing of securities pledged as collateral on loans
 perform a classification of accounts
 test margin requirements for accounts that are over and
under-margined
 prepare classifications for FOCUS reports
 select a sample of transactions from the transactions file for
the testing
 summarize cash receipts and disbursements, and compare it
to the bank activity
 review the transactions file for unusual, excessive, large
adjustment, or large transfers
 test interest calculations on margin accounts
 match securities held at the depository to securities on the
stock record for the respective accounts