Question

Provide the audit risk calculation?

List and describe four of the nine cycles in The Revenue Cycle?

What is the criteria set forth by the SEC must take place for an organization to recognize revenue?

What are the four types of controls over cash which should be present within an organization?

List three methods of auditing the cash account of an organization?

Answer 1

1) Audit Risk Calculations : - Audit risk refers to the risk that an auditor may issue an unqualified report due to the auditor's failure to detect material misstatement either due to error or fraud. a) Inherent risk (IR) - risk involved in the nature of business or transaction. b) Control risk (CR) - the risk that a misstatement may not be prevented or detected. c) Detection risk (DR) - the probability that the audit procedures may fail to detect existence of a material error or fraud. Audit Risk = IR × CR × DR.

2) A standard efficient business accounting is maintaining detailed records on accounts receivable. One part of the accounting process is the revenue cycle. a) Online Publisher - An Internet business that operates a website that sells advertising space would normally experience several distinct steps in a revenue cycle. Once payment is received and recorded, the revenue cycle is complete for the sale.

b) Manufacturer - In a manufacturing business, the revenue cycle begins with the finished product. When the balance is paid and clears accounts receivable, the revenue cycle for this sale would be complete.

c) Service industries - A business that offers services may bypass several of the transactions in a revenue cycle for a manufacturing firm. The service is rendered, payment is received before the customer leaves the shop and revenue cycle is complete.

d) Health Care Providers - The revenue cycles of some service industries are more complex. The cycle starts when the service is rendered and the receipt of payments ends the revenue cycle for that occurrence of service.

3) According to the SEC, SAB 101 spells out the criteria for revenue recognition based on existing accounting rules, which say that companies should not recognize revenue until it is realized and earned. The seller's price to the buyer is fixed or determinable.

4) To control and manage cash, a company should : - a) Separation of duties : - separate cash handling duties among different people. b) Accountability, authorization and approval : - Cash accountability ensures that cash is accounted for, properly documented and secured, and traceable to specific cash handlers. c) Security of assets : - Be sure to keep all your resources physically protected, including your cash handlers. d) Review and reconciliation : - Your reconciliation activities confirm that you've recorded transactions correctly. Perform monthly reconciliation of cash receipts and bank account statements to provide good checks and balances.

5)The auditor must obtain reasonable assurance that the cash balances of the company are stated accurately and does so using mostly standard procedures.

a) Confirmation : - the primary audit procedure used in testing cash balance is confirmation. In order to test confirmation, auditors ask the company's bankers to verify the balance of the bank accounts directly. b) Foreign currency translation : - For companies that hold cash denominated in foreign currencies, part of the cash audit process includes a test of the translation process. c) Reconciliation Testing : - As a part of cash testing, auditors also test the bank reconciliation process. Other methods are i) Inquiry, ii) Examination of evidence, iii) Re-performance.

The audit techniques are tools or methods or processes by means of which auditor collects necessary evidence.