What is different when evaluating, reporting, & testing interal controls for a nonpublic company?
1 Reporting Requirements-no requirement for an audit of interal controls
2 Extent of required internal controls-management is responsible for establishing interal controls
3 Extent of understanding needed-only to obtain a sufficient understanding
4 Assessing control risk-preliminary assessment of control risk maximum
5 Extent of tests of controls needed
(3) Objectives in designing an effective internal control system
1 Reliability of financial reporting
2 Efficiency & effectiveness of operations
3 Compliance with laws & regulations
(5) Main Control Activities
1 Adequate separation of duties
2 Proper authorization of transactions & activities
3 Adequate documents & records
4 Physical control over assets & records
5 Independent checks on performance
(5) Step Approach to identify deficiencies, significant deficiencies & material weaknesses
1 Identify the existing controls
2 Identify the absence of key controls
3 Consider the possibility of compensating controls
4 Decide whether there is a significant deficiency or material weakness
5 Determine potential misstatements that could result
Step 1 Audit Procedures for A/R
Obtain an aged list of receivables;
Trace amounts to master file
Foot schedule
Trace to G/L
Step 2 Audit Procedures for A/R
Obtain analysis of allowance & bad debt
Test accuracy
Examine authorization for write-offs
Trace to G/L
Step 3 Audit Procedures for A/R
Obtain direct confirmation of A/R
Perform alternative procedures for nonresponses
Step 4 Audit Procedures for A/R
Review A/R control account for period
Investigate unusual entries
Investigate significant +/- sales at Y/E
Step 5 Audit Procedures for A/R
Review receivables for any that have neen assigned or discounted
Step 6 Audit Procedures for A/R
Investigate collectibility of account balances
Step 7 Audit Procedures for A/R
Review lists of balances for amounts due from related parties or employees, credi balances & unusual items as well as notes receivable due after 1 year
Step 8 Audit Procedures for A/R
Determine that proper cutoff procedures were applied at the B/S date to ensure that sales, cash receipts, & credit memos have been recorded in the correct period