Chapter 7 Notes: Auditing and Assurance Services

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Chapter 7 Overall Audit Approach for the Revenue and Collection Cycle * Audit risk- the risk that auditors will issue and unqualified opinion on financial statements that contain a material misstatement * Inherent risk and control risk * 3 step approach for audit risk model * Set audit risk at desired levels * Assess risk of material misstatement * Determine detection risk based on the level of audit risk and risk of material misstatement * The components of the audit risk model are assessed on an assertion-by-assertion basis * This assessment recognizes that certain assertions assume an increased level of importance and are of more interest to auditors than others * Existence assertions is important…show more content…
* Customer orders, shipping documents, and invoices should be in prenumbered sequence so the system can check the sequence and determine whether any transaction have not be recorded or have been duplicated Delivering Goods and Services to Customers Physical custody of inventory -> storeroom or warehouse -> transferred to shipping department upon authorizations of the shipping order that permits the inventory clerk to release good to the shipping department. Proper authorization is important. Employees that perform each step to should transfer documents making them accountable. This prevents employees from misappropriating the goods or shipping product to friends without billing them. A bill of lading is a form that the carried signs to verify the goods shipped. A packing slip describes the good being shipped is often included with the shipment Billing customers and Accounting for A/R When delivery or shipment is complete, the system finishes the transaction by filing a shipment record and preparing a final invoice for the customer. A sales invoice is the bill sent to the customer that indicates the amount due. People who have the power to enter or alter these transactions or change the invoice before it is mailed to the customer should not have any authorization, custody, or

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