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Sunday, May 6, 2018

Audit Procedures

Scope of an audit


Refers to the audit procedures deemed necessary in the circumstances to achieve the objective of an audit.

Audit Procedures

Are the methods or acts that auditors use to gather evidence to determine the validity of the FS assertions.

Examples are:

Audit Procedure
Description
Inspection / Examination of Documents
Consists of examining records, documents, or tangible assets.
Consists of examining records, documents, or tangible assets.
Consists of looking at a process/procedure being performed by others.
Inquiry and Confirmation
Inquiry – seeking information of knowledgeable persons
Confirmation – consists of the response to an inquiry to corroborate information contained in the accounting records.
Computation / Reperformance
Computation – checking the mathematical accuracy of source documents and accounting records or performing independent calculation.
Reperformance – repeating a client activity
Tracing
Involves establishing completeness of transaction processing by following through accounting records.
From documents to records.
Reconciliation
Involves establishing agreements between 2 sets of independently maintained but related records.
Vouching
Involves following a transaction back to supporting documents from a subsequent processing step (also referred to as “tracing back”). Establishes existence or occurrence.
From records to documents.
Analytical procedures
Consists of comparing relationships between data to determine reasonableness of recorded amounts.

Relationship of Audit Techniques, Audit Procedures, and Assertions

Audit Techniques are the basic tools or means employed to obtain audit evidences.

Audit Technique
Illustrative Application
Assertion Substantiated
Count
Counting of inventory, cash securities, unmatured promissory notes.
PHYSICAL EXISTENCE.
To establish existence and, where applicable, ownership and condition of assets.
Confirm
Obtaining confirmation directly of details of account balances.
EXISTENCE, RIGHTS AND OBLIGATIONS.
To verify validity and accuracy of balances & other information with outside parties.
Inquire
Obtaining client’s representation letter; explanation to many diverse questions raised during the audit.
COMPLETENESS.
To obtain knowledge.
Examine / Inspect / Review / Trace / Verify / Vouch
Examining (or vouching) paid checks, vendors’ invoices, approved client documents, titles, contracts, and other documentary materials.
OCCURRENCE, MEASUREMENT.
To verify the validity and propriety of accounting treatment & internal control compliance.
Observe / Test / Verify
Observing the taking of physical inventories by client personnel; of actual operation of internal control.
EXISTENCE.
To determine compliance with prescribed procedures.
Extend / Foot
Rechecking clerical determinations by client.
MEASUREMENT.
To verify the accuracy of computations and transfer of information made by client.
Compare / Trace
Comparing current period account balances or operating data with similar information for prior periods and investigation of unusual data relationship.
COMPLETENESS.
To disclose and determine the reasons for significant changes.
Analytical review
Compare sales with sales budget.
COMPLETENESS.

Thursday, January 12, 2017

Discussions in Corporate Law by Atty. Johnson Ong (Year 2012)


By: Atty. Johnson A. H. Ong, CPA, MBA
      PRTC Reviewer in Business Law

PRTC lecturer Atty. Ong

Track 1
Track 2
Track 3
Track 4
Track 5
Track 6
Drill


*Author's Note: These materials are intended solely for review and academic use specifically published to help aspiring CPA Reviewees and accountancy students prepare for the Philippine Certified Public Accountant (CPA) Board Examinations. Copying and distributing such materials are considered violations of the copyright law and may result to legal proceedings.

Tuesday, November 29, 2016

Discussions in Contracts by Atty. Johnson Ong (Year 2012)

By: Atty. Johnson A. H. Ong, CPA, MBA
      PRTC Reviewer in Business Law

PRTC lecturer Atty. Ong

Track 1
Track 2
Track 3
Track 4
Track 5
Drill No. 01


*Author's Note: These materials are intended solely for review and academic use specifically published to help aspiring CPA Reviewees and accountancy students prepare for the Philippine Certified Public Accountant (CPA) Board Examinations. Copying and distributing such materials are considered violations of the copyright law and may result to legal proceedings.

Friday, July 15, 2016

Accounting for Leases

Photo owned by www.hubspot.net


Definition of terms

A lease is an agreement whereby the lessor conveys to the lessee in return for a payment or series of payments the right to use an asset for an agreed period of time.

A finance lease is a lease that transfers substantially all the risks and rewards incidental to ownership of an asset. Title may or may not eventually be transferred.

An operating lease is a lease other than a finance lease.

A non-cancellable lease is a lease that is cancellable only:
a. upon the occurrence of some remote contingency;
b. with the permission of the lessor;
if the lessee enters into a new lease for the same or an equivalent asset with the same lessor; or
d. upon payment by the lessee of such an additional amount that, at inception of the lease, continuation of the lease is reasonably certain.

The inception of the lease is the earlier of the date of the lease agreement and the date of commitment by the parties to the principal provision of the lease. As at this date:
a. a lease is classified as either an operating or a finance lease; and
b. in the case of a finance lease, the amounts to be recognized at the commencement of the lease term are determined.

The commencement of the lease term is the date from which the lessee is entitled to exercise its right to use the leased asset. It is the date of initial recognition of the lease (i.e., the recognition of the assets, liabilities, income or expenses resulting from the lease, as appropriate.).

The lease term is the non-cancellable period for which the lessee has contracted to lease the asset together with any further terms for which the lessee has the option to continue to lease the asset, with or without further payment, when at the inception of the lease it is reasonably certain that the lessee will exercise the option.

Minimum lease payments are the payments over the lease term that the lessee is or can be required to make, excluding contingent rent, costs for services and taxes to be paid by and reimbursed to the lessor, together with:
a. for a lessee, any amounts guaranteed by the lessee or by a party related to the lessee; or
b. for a lessor, any residual value guaranteed to the lessor by:
i. .the lessee;
ii. a party related to the lessee; or
iii. a third party unrelated to the lessor that is financially capable of discharging the obligations under the guarantee.

However, if the lessee has an option to purchase the asset at a price that is expected to be sufficiently lower than fair value at the date the option becomes exercisable for it to be reasonably certain, at the inception of the lease, that the option will be exercised, the minimum lease payments comprise the minimum payments payable over the lease term to the expected date of exercise of this purchase option and the payment required to exercise it.

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