by Larry Perry, CPA, CPA Firm Support Services, LLC - Larry has over 40 years experience as a CPA practitioner, author of accounting and auditing manuals, author and presenter of live staff training seminars and author of webcast and self-study CPE programs. He is co-founder of CPA Firm Support Services, LLC (www.cpafirmsupport.com), an organization providing resources, training and consulting to smaller CPA firms. Larry writes a weekly blog on AccountingWEB.com focusing on small audits, reviews and compilations. He is currently developing documentation manuals and handbooks for small audits, reviews and compilations and related electronic practice aids.
02/03/2012 - 14:44 - 114 reads
In my previous blog, I briefly discussed the impact of risk on the nature of the tests of balances procedures for accounts receivable. The assessed levels of risk of material misstatement at the assertion level also will determine the number (extent) of necessary accounts receivable confirmations from both sampling and non-sampling plans. Risk determines tolerable misstatement at both the financial statement and assertion levels; tolerable misstatement is the basis for the lower limit of individually significant items. Following is an example of the calculation process.
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01/27/2012 - 14:11 - 328 reads
Similar to my discussion in a previous blog on cash auditing procedures, learning “how” to audit accounts receivable is mainly learning to “what extent” auditing procedures should be applied. The amount of audit work necessary depends on risk of material misstatement (RMM) evaluations at both the financial statement and classification (assertion) levels.
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01/20/2012 - 13:59 - 507 reads
Learning “how” to audit cash is mainly learning “when” to audit cash and to “what extent” cash auditing procedures should be applied. The cause of much over-auditing on many engagements, the amount of audit work necessary depends on risk of material misstatement (RMM) evaluations at both the financial statement and classification (assertion) levels.
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01/14/2012 - 11:24 - 584 reads
Analytical procedures consist of absolute comparisons of dollar balances with prior years’ account balances, or with budgets, ratio comparisons and trend analysis, and computations based on financial or operational data designed to predict the balance in a general ledger account. Analytical procedures also extend beyond numerically-based procedures to become a part of an auditor’s thought process.
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01/06/2012 - 13:34 - 504 reads
A common, effective risk assessment procedure is a systems walk-through procedure. By tracing transactions from their inception to their termination in the general ledger, an auditor can confirm internal control documentation (such as flowcharts, internal control questionnaires and memos) obtained by inquiries of client personnel. The results of a walk-through can be documented on a flowchart or accompanying memo. An auditor’s assessment of control risk will result from these and other procedures.
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