AUD2.txt

Early communication permitted; Written communication no later than 60 days after audit report release date (including matters communicated orally during the audit)

• Must communicate the significant deficiencies and material weaknesses identified in the audit
• May communicate lesser matters

• Restrict distribution of report
• Required to be in writing
• Never states that no significant deficiencies were found

Deficiency (or combination of deficiencies) in internal control such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented or detected and corrected on a timely basis.

Deficiency (or combination of deficiencies) in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance

• Competence
• Objectivity

• Education
• Certification
• Experience
• Performance evaluations

Level to which internal auditors report (organizational status)

• Assess internal auditor's competence and objectivity
• Must supervise, review, evaluate, and test internal auditor's work
• Independent auditor has final responsibility

• Inquire about organizational status, access, and professionalism
• Review documentation of internal auditors' processes

Limited to authorized personnel

1) Revenue/receipts; 2) Expenditures/disbursements; 3) Payroll; 4) Inventory; 5) Fixed assets; 6) Investing/financing

Control risk is generally assumed to be constant within a category of transactions as all transactions are processed the same way.

A group of essentially homogeneous transactions

1) Segregation of duties; 2) Comparisons; 3) Access; 4) Records; 5) Execution of transactions

• Sales invoices are pre-numbered
• Shipping documents for outbound shipments are pre-numbered
• Receivers are pre-numbered

• Goods and services provided in accordance with management's orders
• Terms of sale are in accordance with management's orders
• Credit terms and limits are properly established
• Deliveries of goods and services result in accurate and timely billings
• Sales discounts and billings are in accordance with management's authorization

• Aged accounts receivable trial balance to general ledger
• Monthly statements to customers
• Sales invoices to sales order to shipping documents

• Computer passwords limit access
• Cash receipts are handled by someone without access to accounts receivable record keeping

• Independent employee should review customer statements
• Credit to customers is granted by independent department
• Returns are accounted for by independent clerk in shipping/ receiving

• Management should review terms of sale and note approval
• Management should establish "general" approval of sales within certain limits and "specifically" approve sales over limits
• Management should specifically approve all adjusting journal entries

• Access to cash receipts records and accounts receivable records is limited to authorized personnel
• Detailed cash and account balance records are reconciled with control accounts and bank statements monthly
• All cash receipts are recorded in period received

• Employees with access to cash should be bonded
• Access to cash receipts should be limited to those authorized

Handled separately:

• Opening mail, handling checks received, and preparing remittance listing
• Making deposit (daily)
• Applying payments received to customer accounts
• Preparing bank reconciliation on a timely basis

• Initial cash receipts listing to total in cash receipts journal to bank deposit
• Cash accounts reconciled to bank statements by independent person

• Adjusting journal entries should be approved by management
• Bank reconciliations should be reviewed

• Pre-numbered purchase orders
• Pre-numbered checks
• Appropriate physical control over unused checks
• Supporting documents should be canceled as paid

Keeps track of individual transactions without summarizing amounts owed by vendor

• Separate purchasing department
• Purchasing personnel independent from receiving and recording
• Bank reconciliations are prepared by someone not having other involvement in handling cash receipts, disbursements, or record-keeping

Keeps track of payables by the name of the vendor

• All adjusting entries approved by management
• Only authorized personnel can order goods and services
• Should indicate received goods before payment
• Two signatures should be required on checks

• Cash disbursement employees should be bonded
• Access to cash disbursements or related documents should be limited to authorized personnel

Following activities should be performed by different people:

• Establishing and maintaining employee files
• Timekeeping
• Payroll preparation
• Check distribution
• Reconciling payroll bank account

• Maintain current and accurate payroll information
• Pre-numbered payroll checks
• Separate bank account for payroll transactions

• Payroll should be authorized by responsible official
• Computations verified by independent person
• Overtime payments approved by management
• Payroll for management appropriately reviewed and approved

• Access to personnel files limited to authorized personnel
• Access to payroll checks limited to authorized personnel
• Personnel with access to payroll checks should be bonded

Payroll checks to payroll register

• Separate authorization, bookkeeping (recording), and custody of inventory
• Sales returns should be counted by receiving clerk and a receiver prepared

• Transactions recorded in accordance with management's authorization
• Estimates used to record depreciation, etc. are reasonable
• Appropriate property insurance in force
• Supporting details records properly maintained
• Management approves adjusting journal entries

• Resources obtained and used recorded timely
• Transfers of finished goods recorded timely
• Related expenditures are appropriately classified
• Access to inventory restricted
• Comparison of actual inventory to recorded amounts

• Transactions recorded in accordance with management's authorization
• Investment assets reasonably secure from loss
• Supporting detailed records maintained and compared to general ledger
• Management approves adjusting journal entries

• Acquisition and distribution of inventory in accordance with management's authorization
• Should establish general approval of transactions with specified limits and require specific approval for amounts over limits
• Any adjusting entries approved by management

Access to physical inventory and to inventory records and documents limited to authorized personnel

• Pre-numbered purchase orders
• Pre-numbered receivers
• Consider perpetual inventory system for high dollar items
• Adequate support for general ledger accounts

• Actual inventory to recorded inventory
• Underlying accounting records to general ledger