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Auditing Test 2
| Question | Answer |
|---|---|
| The practice of building up balances in one or more bank accounts based on uncollected (float) checks drawn against similar accounts in other banks. | Check Kiting |
| A client bank statement (usually sent directly to the auditor) that includes all paid checks and deposits slips through a certain date, usually the middle of the month. | Cutoff Bank Statement |
| Violations of laws or government regulations by the company or its management or employees that produce direct and material effects on dollar amounts in financial statements. | Direct-effect Illegal Acts |
| A type of fraud involving employees or nonemployees wrongfully taking money or property entrusted to their care, custody, and control, often accompanied by false accounting entries and other forms of lying and cover-up. | Embezzlement |
| The use of fraudulent means to take money or other property from an employer. It consists of three phases: (1) the fraudulent act, (2) the conversion of the money or property to the fraudster's use, and (3) the cover-up. | Employee Fraud (also know as Defalcation and Misappropriation of Assets) |
| Unintentional misstatements or omissions of amounts or disclosures in financial statements. | Errors |
| An insurance policy that covers most kinds of cash embezzlement losses. | Fidelity Bond |
| Knowingly making material misrepresentations of fact with the intent of inducing someone to believe the falsehood and act upon it and, thus, suffer a loss or damage. | Fraud |
| The theft of a payment and the application of subsequent payments to cover the theft. | Lapping |
| Simple theft of an employer's property that is not entrusted to an employee's car, custody, or control. | Larceny |
| An arrangement in which a fiduciary (e.g., a bank) receives the payments, lists the receipts, deposits the money, and sends the remittance advices (stubs showing the amount received from each customer) to the company. | Lockbox |
| Deliberate fraud committed by management that injures investors and creditors through materially misleading information. | Management Fraud |
| Pressure experienced by a person and believed unshareable with friends and confidants. | Motive |
| A reconciliation in which the bank balance, the bank report of cash deposited, and the bank report of cash paid are all reconciled to the company's general ledger and cash receipts and disbursements journals. | Proof of Cash |
| An analysis used to determine whether transfers of cash from one bank to another were recorded properly (correct amount and correct date). | Schedule of Interbank Transfers |
| A schedule that lists each individual receivable and indicates whether it is current or past due, and how long it is past due. The total should equal the accounts receivable general ledger balance. | Aged Trial Balance |
| A fraudulent financial reporting activity whereby a company recognizes a sale even though it does not ship the merchandise to the customer, but instead holds it in its own warehouse. | Bill and Hold |
| A contract between a seller and a common carrier to verify shipment of goods. | Bill of Lading |
| An audit procedure that simultaneously serves the substantive purpose (obtain direct evidence about the dollar amount in account balances) and the test of controls purpose (obtain evidence about the company's performance of its own control activities). | Dual-purpose Procedure |
| To sell accounts receivable to another party (a factor) at a discount from face value. | Factor |
| A letter sent to a customer by auditors requesting that the customer respond only if the balance is incorrect. | Negative Confirmation |
| A document included with a shipment that shows the description and quantity of the goods being shipped. | Packing Slip |
| A letter sent to a customer by auditors requesting that the customer respond whether the balance is correct or not. | Positive Confirmation |
| Recording revenues in the general ledger. This is often done fraudulently by schemes such as bill and hold. | Revenue Recognition |
| Tests that ensure sales are recorded in the proper period--generally, when they are shipped--and that the cost of sales is recorded and removed from inventory. | Sales Cutoff Tests |
| A bill sent to customers for payment showing the amount due and payment terms. | Sales Invoice |
| A record of vendors that have been vetted to ensure that vendors meet company policy and procedure in term of price, quality, delivery, etc. This control activity provides evidence to auditors of vendor existence. | Approved Vendor List |
| Contract between the shipper and the carrier. Bills of lading include shipping information including ship dates and origination, purchase order number, and signatures for receipt of merchandise. | Bill of Lading |
| Recording expenditures as assets and charging them to expense by a systematic allocation over a number of years. | Capitalizing |
| The transfer of data between different companies using networks such as the Internet. | Electronic Data Interchange (EDI) |
| Recognizing expenses in the same period as associated revenues. | Matching |
| Formal contractual document (may be a computer document) between a buyer and seller issued by the buyer establishing price, delivery point, delivery dates, and other information pertinent to the purchase. | Purchase Order |
| Internal document initialed by a department or person within the entity asking the purchasing department to buy specific goods or services. | Purchase Requisition |
| Documentation completed by the receiving department that includes receiving date and time, purchase order number, condition of material received, and amount of material received. Document provides evidence regarding the receipt of materials by the entity | Receiving Report |
| A substantive procedure to test the completeness assertion for liability accounts. | Search for Unrecorded Liabilities |
| A test of a sample of transactions during the period for monetary errors. | Substantive Test of Transactions |
| Bill sent from the vendor to the entity purchasing the goods or services. | Vendor's Invoice |
| A document used as a source for recording payable. It shows approvals, accounts, and amounts to be recorded, usually attached to the supporting purchase order, receiving report, and vendor invoice. | Voucher/Voucher Package |
| Temporary storage places for transactions awaiting final accounting. They should eventually have zero balances. | Clearing Accounts |
| Fictitious or separated employees fraudulently maintained on the payroll to obtain checks. | Ghost Employees |
| An account that is maintained at a zero or fixed balance in the general ledger. Check written on the account are offset by deposits of the same amount. Used for special purposed such as payroll or branch banking. | Imprest Bank Account |
| The annual report of gross salaries and wages and the income, Social Security, and Medicare taxes withheld. | W-2 |
| List of raw materials and supplies used to build a product that is used to develop standard costs. | Bill of Materials |
| Goods that are given by one party, the consignor, to another party, the consignee, to sell; however, title is retained by the consignee until the goods are sold. | Consignment Goods |
| A method of physically counting different areas of inventory throughout the year. | Cycle Counts |
| Accounting process from date of physical inventory count to the end of the period; includes additions for purchases and production and reductions for sales, scrap, etc. | Inventory Roll-forward |
| Form used to obtain raw materials and supplies from inventory custodian. | Materials Requisition (Materials Transfer Ticket) |
| Selling prices less costs to sell (e.g., sales commissions) | Net Realizable Value (NRV) |
| Accounting procedure used to assign indirect costs to various products. | Overhead Allocation |
| Client's procedure for determining actual amount of inventory on hand. | Physical Inventory Count |
| Auditor's procedures during client's physical inventory count. Includes observing inventory procedures and performing test counts on selected inventory items. | Physical Inventory Observation |
| The procedure for translating units counted in the physical inventory count to amounts recorded in the accounting records, including gains or losses for shortages or overages; involves mathematically accumulating counts and applying standard costs. | Pricing and Compilation |
| Document that communicates to production personnel the specific product, product quantity, and date a product is to be produced. | Production Order |
| Schedule of good to be produced for a period based on sales forecasts. | Production Plan |
| Periodic report (usually daily or weekly that includes a list of all raw materials and the inventoried quantity of each material. | Raw Material Inventory Status Report |
| Report, usually prepared by marketing, predicting future sales of product. | Sales Forecast |
| Estimates of cost to product a product; used for transferring products between departments and to finished goods and to record cost of goods sold; compared to actual costs to obtain variances. | Standard Costs |
| An approximation of a financial statement element, item, or account. | Accounting Estimate |
| A listing of the proposed expenditures for property, plant, and equipment or other capital items for a period of time (usually annually). The capital budget is submitted to senior management with corporate governance responsibilities for approval. | Capital Budget |
| A control activity instituted by a company to offset the risk imposed by a weakness in another activity. | Compensating Control |
| A financial instrument whose value is based on an index or value of another financial instrument. | Derivative Instrument |
| An investment made in order to reduce the risk of adverse price movements in a security or future transaction by taking an offsetting position in a related security such as an option or a short sale. | Hedging Instrument |
| A written agreement between the issuers of bonds and the bondholders, usually specifying interest rate, maturity date, convertibility, and other terms. | Indenture |
| Provision in a loan agreement that requires the borrower to undertake or refrain from specified actions and to maintain specified financial levels and ratios. | Loan Covenant |
| Financial institution appointed to record issue and ownership of company securities. | Registrar |
| Party with which an enterprise may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate ints. | Related Party |
| A partnership formed by a company to pursue particular lines of business, often used to keep risky enterprises off the company's books. QSPE is the newer term instated by the FASB. | Special Purpose Entity (SPE)/Qualified Special Purpose Entity (QSPE) |
| A book(similar to a check book)with pre# stock certs.These certs. are issued to investors w/the custodian of the book recording the number of shares, the owner's name, the date of issue, and other ID info.Mostly for small not publicly traded companies. | Stock Certificate Book |
| A bank or other company employed by a corporation to maintain shareholder records, including purchases, sales, and account balances. | Transfer Agent |
| Agent of a bond issuer who handles the administrative aspects of a loan and ensures that the borrower complies with the terms of the bond indenture. | Trustee |
Created by:
AbbyP
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