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Using Sampling to Test Account Balances During an Audit
You can use sampling to test the strength of a client’s internal controls, but you also use sampling to test account balances. The full name for this process in auditing lingo is sampling for substantive [more…]
Confirming Accounts Receivable During an Audit
A major auditing issue with accounts receivable is whether the amount reflected in the customer’s subsidiary ledger reconciles with the correct customer balance. When you audit accounts receivable, you [more…]
How Companies Classify Expenses
Your audit client’s expenses are all the costs it incurs while keeping its business open. Most likely, these costs are a combination of expenses you find very familiar, such as telephone and utilities, [more…]
How Companies Make Purchases
As an auditor you have to assess the purchasing procedures your client uses. An important part of the purchasing process is — no surprise! — paying for the purchase. Businesses and individuals alike have [more…]
Examining Purchase Procedures for Risk
At every step of an audit, you have to consider risks and their associated controls. Normally, purchases don’t have a lot of inherent risk because the process doesn’t involve any complicated or contentious [more…]
How to Assess Control Risk in Your Client’s Purchasing Procedures
When assessing purchasing control risk, auditors assume that control risk is directly affected by purchasing internal controls set in place by the business. The purchases process has control risk associated [more…]
How to Test Cash Disbursement Transactions
During your audit, you need to test management financial statement assertions. When you test cash disbursements during an audit, your first job is to figure out how your audit client pays its invoices. [more…]
Including Tangible Assets in an Audit
When you perform an audit of a company, you have to account for that company’s tangible assets. You can find your audit client’s property, plant, and equipment in the asset section of its balance sheet [more…]
How to Check Depreciation Calculations
There are a few different ways that your audit client might use to figure depreciation. In addition to understanding depreciation accounting methods, when doing an audit, you need to know the following [more…]
How to Deal with the Disposal of Fixed Assets
In the normal course of doing business, an audit client will rid itself of unneeded fixed assets by selling them, trading them in as partial payments on new fixed assets, or [more…]
Handling Unpurchased Assts in an Audit
Auditing purchased assets is relatively easy, because you can test most management assertions by looking at the purchase source documents. But what about assets that aren’t purchased? Here are three examples [more…]
How to Deal with Intangible Assets During an Audit
Intangible assets differ from the other assets on your audit client’s balance sheet because they don’t have a physical presence and aren’t financial instruments like cash. However, like fixed assets, their [more…]
Checking Amortization Calculations in an Audit
As an auditor, you have to check the company’s intangible assets and that means understanding amortization. Amortization spreads the cost of an intangible asset over its expected useful life. Much like [more…]
Long-Term Debt that Impacts an Audit
Companies, like individuals, have long-term debt. To perform an audit, you need to understand the forms a company’s long-term debt can take and the debt-related issues you need to consider when conducting [more…]
How to Review Capital Stock Accounts
When you are auditing stockholder equity, you want to look at the capital stock accounts. Capital stock includes all paid-in capital. The board of directors has to approve all capital stock transactions [more…]
Following Long-Term Debt Audit Procedures
As an auditor, your primary objective is to make sure all your client’s legitimate obligations are properly recognized on its financial statements. Here are three tasks auditors must perform when examining [more…]
Stockholders’ Equity Issues in Auditing
Stockholders’ equity represents the claim that the corporation’s shareholders have to the company’s net assets. As an auditor you have to account for net assets. Stockholders’ equity has three common components [more…]
Examining the Company Charter When Auditing Stockholders’ Equity
Your first task when reviewing your audit client’s stockholder equity transactions is to double-check the terms of the corporate charter. The corporate charter contains pertinent facts about the corporation [more…]
Confirming Transactions When Auditing Stockholder Equity
When performing an audit of stockholder equity, you will want to verify the transactions with an independent registrar, who can confirm that all stockholders’ equity transactions are authorized by a company’s [more…]
How to Test Dividends
During your audit of stockholder equity, you want to make sure your client’s dividends are correct. Making money is the whole reason that investors purchase stock, and dividends are one way that investors [more…]
How to Review Retained Earnings
During your audit, you shouldn’t have to deal with much activity going on in the retained earnings account, so you generally audit all the transactions rather than sample and test. Inherently this is just [more…]
How Businesses Use Cash Accounts
From an auditing standpoint, cash is an important account because cash transactions affect all other business and financial processes. Businesses acquire cash by selling goods or services, disposing of [more…]
Auditing a Company’s Interest-Bearing Bank Accounts
Some accounts can accrue interest. As an auditor, you need to keep track of these accounts as well as cash and investment accounts. Keep in mind that all interest income from all bank accounts must be [more…]
Auditing a Company’s Investment Accounts
When performing an audit you have to account for all of your client’s assets. Not all assets are tangible objects or cash sitting in the bank. Many companies sell their own securities [more…]
How to Examine Risks Related to Liquid Assets
At every step of an audit, you have to consider risks and their associated controls. It’s important to consider risks and controls to make sure your audit effectively and efficiently guides you toward [more…]
