Professional Documents
Culture Documents
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Learning Objective 1
Recognize the many accounts
in the acquisition and
payment cycle.
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Phase I
Phase I
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Audit procedures
Sample size
Phase III
Items to select
Timing
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Learning Objective 2
Design and perform audit tests of
property, plant, and equipment
and related accounts.
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Classifications of Property,
Plant, and Equipment Accounts
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Manufacturing Equipment
and Related Accounts
Manufacturing
Equipment
Disposals
Beginning
balance
Acquisitions
Ending
balance
Accumulated
Depreciated
Disposals Beginning
balance
Current period
depreciation
Ending balance
Gain or Loss
on Disposals
Depreciation
Expense
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Possible misstatement
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Possible misstatement
Idle equipment or
equipment that was
disposed of but not
written off
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Balance-Related Audit
Objectives
Detail tie-in:
Current acquisitions agree
with the master file.
1. Foot the acquisition schedule.
2. Trace the individual acquisitions
to the master file.
3. Trace the total to the general ledger.
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Balance-Related Audit
Objectives
Existence:
Current acquisitions as listed exist.
1. Examine vendors invoices and
receiving reports
2. Physically examine assets.
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Balance-Related Audit
Objectives
Completeness:
Existing acquisitions are recorded.
1. Examine vendors invoices of closely
related accounts to uncover items that
should be manufacturing equipment.
2. Review lease and rental agreements.
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Balance-Related Audit
Objectives
Accuracy:
Current year acquisitions as listed
are accurate.
1. Examine vendors invoices.
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Balance-Related Audit
Objectives
Classification:
Current year acquisitions as listed
are correctly classified.
1. Examine vendors invoices in
manufacturing equipment account.
2. Examine vendors invoices of closely
related accounts.
3. Examine rent and lease expense
for capitalizable leases.
2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
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Balance-Related Audit
Objectives
Cutoff:
Current year acquisitions are recorded
in the correct period.
1. Review transactions near the balance
sheet date for correct period.
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Major Balance-Related
Audit Objectives
Rights:
The client has rights to current year
acquisitions.
1. Examine vendors invoices.
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Learning Objective 3
Design and perform audit tests
of prepaid expenses.
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Insurance Expense
Current period
insurance
expense
Acquisitions
Ending
balance
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Internal Controls
Acquisition and recording of insurance
Insurance register
Insurance expense
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Audit Tests
Compare total prepaid insurance and
insurance expense with previous years
Compute the ratio of prepaid insurance
to insurance expense and compare
it with previous years
Compare the individual insurance policy
coverage on the schedule of insurance
obtained with the preceding years schedule
2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
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Audit Tests
Compare the computed prepaid insurance
balance for the current year on a policy-bypolicy basis with that of the preceding year.
Review the insurance coverage listed on
the prepaid insurance schedule with an
appropriate client official or insurance broker.
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Balance-related Audit
Objectives
Existence and completeness:
Insurance policies in the prepaid insurance
schedule exist and existing policies are listed.
Rights:
The client has rights to all insurance policies
in the prepaid insurance schedule.
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Balance-related Audit
Objectives
Accuracy and detail tie-in:
Prepaid amounts are accurate and the total
is correctly added and agrees with the
general ledger.
Classification:
Insurance expense is properly classified.
Cutoff:
Insurance transactions are recorded in the
proper period.
2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
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Learning Objective 4
Design and perform audit tests
of accrued liabilities.
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Accrued payroll
Accrued commissions
Accrued rent
Accrued interest
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Current period
property tax
expense
Ending
balance
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Learning Objective 5
Design and perform audit tests of
income and expense accounts.
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Possible misstatement
Overstatement or
understatement of a
balance in an expense
account
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Possible misstatement
Misstatement of expenses
and related balance
sheet accounts
Misstatement of cost of
goods sold and inventory
Misstatement of cost of
goods sold and inventory
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Possible misstatement
Misstatement of insurance
expense and prepaid
insurance
Misstatement of
commission expense and
accrued commissions
Misstatement of individual
manufacturing expenses
and related balance
sheet accounts
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End of Chapter 18
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