Credit approval: valuation and allocation Shipping? Check sales invoices Sales returns? Receiving Order online?

No need for a sales ordering department If the auditor is concerned with completeness, he or she would test the client's controls that are designed to determine that all sales that occur are recorded. These controls could include the entity accounting for all prenumbered shipping documents, which provide the basis for recording sales, to determine that none have been omitted. An integrated test facility is a method of testing programmed controls by creating a small subsystem within the regular EDP system. Dummy files and records are appended to existing client files and fictitious test transactions, specifically coded to correspond with the dummy files and records, are introduced into a system together with actual transactions. Control procedures over the payroll function include the reconciliation of job time tickets to employee clock card hours. Purchasing agent has authority to purchase, not authority to initiate purchases. If the auditors determine that the client's internal control is effective at preventing or detecting misstatements, they will assess the control risk low. They can then accept a higher level of detection risk, and the substantive testing can be decreased. The supporting documentation should be canceled by the check signer (usually the treasurer) and not the accounts payable department. Once a general understanding of internal control has been obtained, the auditor only needs to test specific controls if it is efficient to do so. If the general internal control system appears to be well designed, testing specific controls to verify their efficiency can lead to a reduction in the assessed level of control risk. Hopefully, the amount of substantive testing can then be reduced because the desired level of detection risk does not need to be so low. This decrease in substantive testing can lead, possibly, to an overall reduction in the time and cost of performing the audit. Conversely, if the internal control appears to be weak, no benefit is gained by testing those controls further. It is not likely that those weaknesses can be overcome. Risk is the basic fundamental concept that underlies the audit process. It is the acceptance by auditors that there is some level of uncertainty in performing the audit function. In identifying fraud risks, the auditors consider various fraud risk factors that may be indicative of fraud. The factors are organized around three fundamental conditions necessary for the commission of fraud and have been shown to be present in circumstances where frauds have occurred. The CPA must keep gathering evidence until the perceived audit risk is reduced to an appropriately low level (4 percent in this case). Mathematically, audit risk is the product of three components: inherent risk, control risk, and the auditor's detection risk. Inherent risk has already been assessed as 80 percent and control risk as 20 percent. At this point, .80 times .20 gives .16 (or 16 percent risk). The auditors quandary is to determine the amount of substantive testing that still needs to be performed to reduce detection risk enough to drop overall audit risk from this 16 percent to 4 percent (or .04). Or, stated differently, .80 x .20 x DR = .04. Only 25 percent or .25 will reduce the .16 down to .04. When detection risk drops to 25 percent, then .80 x .20 x .25 will equal the desired level of audit risk of 4 percent.

Materiality: use BS accounts Competent, sufficient evidence? Audit program Illegal acts effect f/s directly: Illegal acts that have a material but indirect effect on the financial statements are those acts that are removed from transactions and events reflected in the financial statements. The auditor should be aware that they have occurred, although an audit provides no assurance that they will be detected. Kiting: When money is moved from one account to another but the deposit and the withdrawal are recorded in different time periods to inflate the amount of cash being reported, the term kiting is used to identify that fraud. The operational audit is usually performed by internal auditors in order to evaluate the efficiency and effectiveness of some parts of an organization in achieving specific goals. Quality control comprises the methods used to ensure that the firm meets its professional responsibilities to clients and others. There are five elements of quality control: (1) independence, integrity and objectivity; (2) personnel management; (3) acceptance and continuation of clients and engagements; (4) engagement performance; and (5) monitoring. None of these qualities pertain to advertising or marketing the business. If you are a partner where an audit for a public company is performed you are automatically a covered member (perform clerical duties does not a covered member) While Bravo is involved in a suit related to its audit client, independence is not impaired in this situation unless Bravo initiates a cross claim against client management or the audit client also initiates a lawsuit against the auditor Statements that use the word "should" are considered "presumptively mandatory." As stated in another answer choice, presumptively mandatory standards do impose a requirement on the auditor, but the auditor may depart in rare cases from such standards if justification for the departure is documented.