Exam

Review :

Define the following :

Fraud and the fraud triangle :

Fraud consists of knowingly making material misrepresenta:ons of fact with the intent of inducing someone
to believe the falsehood and act upon it and thus, suffer a loss or damage.
The Fraud Triangle: There are three condi:ons that are likely to be present when fraud occurs. They are:
Mo8va8on: A mo:ve, in the fraud context, is some kind of pressure a person experiences and
believes to be unshareable with friends and confidants > economic mo:ve, psycho:c mo:ve, egocentric
mo:ve, or ideological move.
Opportunity: An opportunity is an open door for solving the unshareable problem by viola:ng
trust.
Ra8onaliza8on: An argument to make the unethical ac:on seem like it is in line with their moral
and ethical beliefs.

A>ributes sampling :
ADributes sampling is used to es:mate the extent to which a characteris:c (aDribute) exists within a
popula:on. It is used during auditors’ tests of controls to: es:mate the rate at which internal control
ac:vi:es are not func:oning as intended (devia8on condi8ons), and compare the es:mated rate to an
allowable rate (tolerable rate of devia8on).
ADributes sampling topics: planning, determining sample size, selec:ng and measuring sample items, and
evalua:ng sample results.

Variable sampling :
Variables sampling is used to es:mate the amount (or value) of a popula:on
Substan:ve procedures :
Es:mate account balance or misstatement
Compare es:mated account balance or misstatement to recorded balance or tolerable
misstatement
Approaches :
Monetary unit sampling (MUS)
Classical variables sampling

What significant accounts (and relevant asser8ons) are associated with the Revenue and
Collec8on Cycle?

Revenue > occurrence, completeness, and cutoff.

Accounts receivable > existence, completeness, and valua:on.

The purpose of AR confirma8on procedures.

• Primarily for verifying the existence
• Factors likely to affect the reliability of confirma:ons
Previous audit experience
The intended recipient of the confirma:on
Type of informa:on being confirmed
The auditor may confirm en:re balances or individual transac:ons
Type of confirma:on being sent
There are three sets of circumstances that could jus:fy the omission of the confirma:on of a client’s
accounts receivable :
Not material to the financial statements
If the risk of material misstatement is low
Confirma:on of accounts receivable is expected to be ineffec:ve.

1 sur 5
 The types of AR confirma8ons.
- Posi:ve confirma:ons :
A small number of accounts are involved
A large number of errors are an:cipated
- Nega:ve confirma:ons :
The combined assessed level of inherent and control risk is low
A large number have no reason to believe that the recipients of the requests are unlikely to give
them considera:on.
- Blanc confirma:on should be used if the recipient is likely to return a posi:ve confirma:on without
verifying the accuracy of the informa:on.

Alterna8ve procedures (when confirma8ons are not received) :

• Vouch for subsequent cash collec:ons
usually sufficient evidence of existence, valua:on
• Examine shipping documents
Especially BOL (third-party evidence)
• Examine client-generated suppor:ng documenta:on, such as invoices
Depends on internal controls
• Inspect correspondence files

What a significant accounts (and relevant asser8ons) are associated with the Acquisi8on and
Expenditure cycle.
Accounts payable :
Completeness > liabili:es are not recorded
Cutoff > liabili:es have been recorded in incorrect periods
Existence > liabili:es may not represent actual obliga:ons of the company
Presenta:on > liabili:es are not recorded in the proper accounts and properly disclosed in
the footnotes
Valua:on > payables are recorded at an incorrect amount
Expenses :
Completeness > not all expenses are recorded
Cutoff > expenses have been recorded in the incorrect period
Accuracy > expenses are recorded at an incorrect amount
Classifica:on > expenses have been improperly recorded as capitalised expenses.

The purpose of the search for unrecorded liabili8es :

Primarily for verifying completeness.

What procedures does the search for unrecorded liabili8es involves :

• Inquire about procedures for iden:fying and recording liabili:es
• Scan open purchase order file
• Examine unmatched vendor statements or invoices
• Examine unmatched receiving reports occurring near year-end
• Trace unpaid vouchers in the accounts payable ledger to receiving reports
• Confirm account payables with normal suppliers (even those with zero balances)
• Review cash disbursements occurring a[er year-end

What significant accounts (and relevant asser8ons are associated with the Produc8on Cycle?
Inventory :
Existence > items included in inventory records are not actual
Completeness > some items are not included in the inventory
Cutoff > items are included in inventory even when received in the subsequent period
Valua:on and alloca:on > inventory
2 sur 5
 Rights
Presenta:on and disclosure
Cost of goods sold :
Completeness
Accuracy

Define the purpose of a physical inventory observa8on. What procedures a physical inventory
observa8on includes?
The purpose of a physical inventory observa:on is primarily to verify the existence of the inventory.
Procedures include :
Observa:on of inventory accounts
Review of client instruc:ons check for the stoppage of the flow of goods
Check for obsolete or slow-moving inventory
Make test accounts : from inventory lis:ng from warehouse floor.

What significant accounts (and relevant asser8ons) are associated with the Finance and
Investment Cycle ?
Investment :
Existence/occurence
Completeness
Valua:on
Presenta:on and disclosure
Long-term debt :
Existence/occurence
Completeness
Valua:on
Presenta:on and disclosure
Capital stock :
Completeness
Presenta:on and disclosure
Retained earnings :
Completeness

What are the four ques8ons you should ask related to an es8mate ?
Who prepared it ? Appropriate exper:se ?
Who reviewed it ? Appropriate qualifica:on ?
How ? What data went into it ? How did they put this together ?
When ?

Mul:ple choice ques:ons :

1- When you foot a client provided document as an audit procedure, what asser8on are you
providing evidence for ?
Accuracy : checking something to make sure it is mathema:cally correct.

2- What policies help prevent fraud within an organisa8on ?

3 sur 5
Having management establish a commitment to integrity by example and through enforcement.

3- During the physical inventory count, what items do you need to keep an eye out for as an
auditor?
Items that appear old and rusty.

4- What are the three approaches that auditors can use when audi8ng accoun8ng es8mates?
Test the company's process; develop an independent es:mate; evaluate events or transac:ons occurring
aXer the measurement date.

5- When performing a bank reconcilia8on, what document do you use in order to verify the
appropriateness of checks outstanding as of year-end?
The cutoff bank statement.

6- When reviewing customer AR confirma8ons (12/31/19 year-end) you find a note that reads,
"balance paid as of 01/02/20." This note indicates:
That AR is correctly included
- Because the balance wasn't paid un:l 2020, the balance is correctly included

7- Performing a search for unrecorded liabili8es helps primarily support what asser8on?
Completeness.

8- What are the four common procedures an auditor will use when tes8ng controls?
Inquiry, inspec:on, observa:on, and reperformance

9- What are the three types of confirma8ons an auditor can send?

Nega:ve, posi:ve, and blank

10- What control would help prevent existence concerns rela8ong to the produc8on cycle?
Preven:ng inapppropriate access to warehouse containing raw materials : preven:ng issues with existence

Essay ques8ons :

While your team is out at field-world, you have been assigned to the Acquisi:on and Expenditures
Cycle. Specifically, your team wants you to complete the search for unrecorded liabili:es.
1- What are two significant accounts within this cycle ? For each account, discuss a relevant asser:on and
associated « what could go wrong » (WCGW)

2- Explain what control might address the WCGWs you noted above.
Completeness > you didn’t get recorded what should have been. Controls that can dress that : Tracing. What
control could your client have in place : do their own independent test (tracing).

3- Explain what audit procedure might address the WCGWs you noted.

4 sur 5
As a part of your research for unrecorded liabili:es, you may choose to send confirma:ons out to certain
vendors.
4- What vendors would be appropriate to send a confirma:on to ?
People you are doing business with, vendors that are likely to have a liability opened to that.

5 sur 5