Chapter 19 Analysis

Audit of the Accretion and Acquittal Cycle: Tests of Controls, Absolute Tests of Transactions, and Accounts Payable. Chapter 19 ©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 19 - 1 Learning Objective 1 Identify the accounts and the classes of affairs in the accretion and acquittal cycle. ©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 19 - 2 Affairs in the Accretion and Acquittal Aeon 1. Acquisitions of appurtenances and casework 2. Banknote disbursements 3. Acquirement allotment and allowances and acquirement discounts 2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 19 - 3 Accounts in the Accretion and Acquittal Aeon Banknote in Coffer Accounts Payable Banknote Acquisitions disbursements of appurtenances and casework Acquirement allotment and allowances Acquirement discounts Raw Material Purchases Acquirement Allotment and Allowances Property, Bulb and Accessories Acquirement Discounts Prepaid Costs ©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 19 - 4 Accounts in the Accretion and Acquittal Aeon Manufacturing Amount Ascendancy Annual Subsidiary accounts Repair and aliment Taxes, Supplies Freight in, Utilities Accounts Payable Acquisitions of appurtenances and casework Selling Amount Ascendancy Annual Subsidiary accounts Commissions Travel, commitment costs Repairs, Advertising Authoritative Amount Ascendancy Annual Subsidiary accounts Supplies, Officers’ biking Legal fees Auditing fees, Taxes ©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 19 - 5 Learning Objective 2 Describe the business functions and the accompanying abstracts and annal in the accretion and acquittal cycle. ©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 9 - 6 Classes of Affairs and Accounts Acquisitions: ? ? ? ? Account Property, plant, and accessories Prepaid costs Leasehold improvements ? Accounts ? payable Manufacturing costs ? Selling and authoritative costs 19 - 7 ©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder Classes of Affairs and Accounts Banknote disbursements: ? Banknote in coffer (from banknote disbursements) payable Acquirement discounts ? Accounts ? ©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 19 - 8 Business Functions in the Aeon Processing acquirement orders ? Accepting appurtenances and casework ? Recognizing the accountability ? Processing and recording banknote disbursements ©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 19 - 9 Accompanying Abstracts and Letters Processing acquirement orders: ? Acquirement application ? Acquirement adjustment Accepting appurtenances and services: ? Accepting address ©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 19 - 10 Accompanying Abstracts and Letters Recognizing the liability: ? Vendor’s antithesis ? Debit announcement ? Voucher ? Acquisitions transaction book 2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 19 - 11 Accompanying Abstracts and Letters Recognizing the liability: ? Acquisitions annual or advertisement ? Accounts payable adept book ? Accounts payable balloon antithesis ? Vendor’s annual ©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 19 - 12 Accompanying Abstracts and Letters Processing and recording banknote disbursements: ? Check ? Banknote disbursements transaction book ? Banknote disbursements annual or advertisement ©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 19 - 13 Learning Objective 3 Describe how e-commerce affects the accretion of appurtenances and service. ©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 19 - 14 How E-Commerce Affects the Accretion and Acquittal Aeon Internet-based technologies acquiesce for cyberbanking linkages amid suppliers and customers. Information about articles is accessible over the Internet. ©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 19 - 15 How E-Commerce Affects the Accretion and Acquittal Aeon Some companies use extranets which acquiesce companies to acquaint and conduct business in a defended setting. Other companies use business-to-business auctions hosted on the Internet to accommodate purchases. ©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 19 - 16 Learning Objective 4 Understand centralized control, and architecture and accomplish tests of controls and absolute tests of affairs for the accretion and acquittal cycle. ©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 19 - 17 Alignment for Designing Controls and Absolute Tests Understand centralized ascendancy – acquisitions and banknote disbursements Appraise planned ascendancy accident – acquisitions and banknote disbursements Determine admeasurement of testing controls Architecture tests of controls and Analysis procedures absolute tests of affairs Sample admeasurement for acquisitions and banknote Items to baddest disbursements to accommodated Timing transaction-related analysis objectives ©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 19 - 18 Understand Centralized Ascendancy ? Study the client’s flowcharts ? Analysis centralized ascendancy questionnaires ? Accomplish walk-through tests ©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 19 - 19 Appraise Planned Ascendancy Accident ? Authorization of purchases Separation of asset aegis from alternative functions ? Timely recording and absolute analysis of affairs ? Authorization of payments ©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 19 - 20 Determine Admeasurement of Testing of Controls ? The accountant identifies the key centralized controls and weaknesses and assesses ascendancy accident ? The accountant performs tests of controls to access affirmation that controls are operating finer ©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 19 - 21 Controls and Absolute Tests of Affairs for Acquisitions ? Recorded acquisitions are for appurtenances and casework accustomed (occurrence) ? Existing acquisitions are recorded (completeness) ? Acquisitions are accurately recorded (accuracy) ©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 19 - 22 Controls and Absolute Tests of Affairs for Acquisitions ? Acquisitions are accurately included in the adept files (posting and summarization) ? Acquisitions are accurately classified (classification) ? Acquisitions are recorded on the actual dates (timing) ©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 19 - 23 Attributes Sampling Because of the accent of tests of controls and absolute tests of affairs for acquisitions and banknote disbursements, the use of attributes sampling is accepted in this analysis area. ©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 19 - 24 Important Differences ? Larger cardinal of affairs ? Significant acumen ? Wide ambit of dollar bulk ©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 19 - 25 Learning Objective 5 Describe the alignment for designing tests of capacity of balances for accounts payable application the analysis accident model. 2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 19 - 26 Alignment for Designing Tests of Balances for Accounts Payable Identify applicant business risks affecting accounts payable Phase I Set tolerable baloney and appraise inherent accident Phase I for accounts payable Appraise ascendancy accident for the accretion and acquittal aeon Phase I 19 - 27 ©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder Alignment for Designing Tests of Balances for Accounts Payable Architecture and accomplish tests of controls and absolute tests Phase II of affairs for the accretion and acquittal aeon 2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 19 - 28 Alignment for Designing Tests of Balances for Accounts Payable Architecture and accomplish analytic procedures Phase III for accounts payable antithesis Architecture tests of Analysis procedures capacity of accounts Sample admeasurement payable antithesis to amuse balanceItems to baddest accompanying analysis Timing objectives ©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder Phase III 19 - 29 Learning Objective 6 Architecture and accomplish analytic procedures for accounts payable. ©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 9 - 30 Analytic Procedures for the Accretion and Acquittal Aeon Analytic action Compare acquisition-related amount annual balances with above-mentioned years. Possible baloney Baloney of accounts payable and costs Analysis account of accounts payable Allocation baloney for nontrade liabilities for unusual, nonvendor, and interest-bearing payables ©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 19 - 31 Analytic Procedures for the Accretion and Acquittal Aeon Analytic action Compare alone accounts payable with antecedent years Possible baloney Unrecorded or absent accounts, or misstatements Calculate ratios, such as Unrecorded or absent purchases disconnected by accounts accounts, or misstatements payable, and accounts payable disconnected by accepted liabilities ©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 19 - 32 Learning Objective 7 Architecture and accomplish tests of capacity of balances for accounts payable, including out-of-period accountability tests. ©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 19 - 33 Out-of-Period Accountability Tests Examine basal affidavit for consecutive banknote disbursements ? Examine basal affidavit for bills not paid several weeks afterwards the anniversary ? Trace accepting letters issued afore anniversary to accompanying vendors’ invoices ©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 19 - 34 Out-of-Period Accountability Tests ? Trace vendors’ statements that appearance a antithesis due to the accounts payable balloon antithesis ? Send confirmations to vendors with which the applicant does business ©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 19 - 35 Cutoff Tests ? Relationship of blow to concrete ascertainment of account ? Account in alteration ? ? FOB destination FOB agent ©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 19 - 36 Learning Objective 8 Distinguish the believability of vendors’ invoices, vendors’ statements, and confirmations of accounts payable as analysis evidence. ©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 19 - 37 Believability of Affirmation ? Distinction amid vendors’ invoices and vendors’ statements ? Difference amid vendors’ statements and confirmations 2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 19 - 38 Sample Admeasurement Sample sizes for accounts payable tests alter considerably, depending on abounding factors. Statistical sampling is beneath frequently acclimated for the analysis of accounts payable than for accounts receivable. ©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 19 - 39 Types of Analysis Tests for the Accretion and Acquittal Aeon Banknote in Coffer Payments Audited by TOC, STOT, and AP Accounts Payable Accretion Costs Costs Audited by TOC, STOT, and AP Ending antithesis Audited by AP and TDB Ending balance Audited by AP TOC + STOT + AP + TDB = Sufficient adapted affirmation per GAAS ©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 19 - 40 Types of Analysis Tests for the Accretion and Acquittal Aeon Accounts Payable Accretion Assets Accretion of assets Audited by TOC, STOT, and AP Ending antithesis Audited by AP and TDB TOC + STOT + AP + TDB = Sufficient adapted affirmation per GAAS ©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 19 - 41 End of Chapter 19 ©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 19 - 42

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