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Auditing Week One In Class Notes

by: Morgan Notetaker

Auditing Week One In Class Notes ACG4651

Marketplace > University of West Florida - Pensacola > Accounting > ACG4651 > Auditing Week One In Class Notes
Morgan Notetaker
UWF - Pensacola
GPA 3.6
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About this Document

These are the notes adapted from his own notes as well as what we talked about in class and what was important from the book. This encompasses Week One of our Auditing class. The class is ACG4651.
Dr. Joseph Donelan
Class Notes
business, Accounting, auditing, ACG, ACG4651




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This 5 page Class Notes was uploaded by Morgan Notetaker on Wednesday September 14, 2016. The Class Notes belongs to ACG4651 at University of West Florida - Pensacola taught by Dr. Joseph Donelan in Fall 2016. Since its upload, it has received 7 views. For similar materials see Auditing in Accounting at University of West Florida - Pensacola.


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Date Created: 09/14/16
In-Class Notes for Week one of Auditing (ACG4651) Relevant to Cumulative Final Exam First, we’ll address the AIS Excel case that this class has to complete. I won’t go through the entire  thing step­by­step, but there is a lot of terminology that’s necessary to the course that we learned  using this case.   AIS Excel Case Notes:   JOURNAL​: a book/p ​ oint of ori​ginal entry for transactions, not always sorted unless you have  specialized journals (i.e. Cash Disbursements, Cash Receipts, but ONLY chronologically, no other  sorting)  GENERAL JOURNAL​: the book of original entry for all economic activities that don’t ​ necessarily ​fit into  any of the other specialized journals; these also include month and year­end entries, i.e. depreciation,  bad debt expense, adjusting entries, etc.   SPECIALIZED JOURNAL:​ for entry of specific types of activities that are similar in nature, i.e. the cash  receipts journal or the credit sales journal; in the cash receipts journal, all of the transactions will  include debits to cash and in the credit sales journal, the debit will always be to A/R and the credit to  Sales Revenue  LEDGER​: where something is sorted by the chart of accounts (i.e. the financial statements accounts);  the “mother of all sorts”; financial statements are created from here; the ledger pulls data from a  journal  GENERAL LEDGER​: a collection of all the accounts (assets, liabilities, equity, revenues, expenses, and  drawing accounts); the information within this journal includes: 1) the account name, 2) EITHER  detailed information about all of the transactions in that account or a summarized batch of postings  of transaction info, and 3) the account balance; the general journal pulls its info from books of original  entry aka journals  SUBSIDIARY LEDGER: ​this contains the details related to any given general ledger account; not every  GL account has a sub ledger ­ if there are additional classifications within the account that are needed  for controls ­   i.e. the Accounts Receivable Sub Ledger: sorts the transactions by customers (i.e. this is              for any subsidiary ledger, everything is sorted by the category/title from within the ledger)  TRIAL BALANCE:​ this is a report is used mainly to provide a summary of all the accounts; there’s most  likely more detail in this than there will be in the other financial statements because with FS, accounts  are often combined to create conciseness;  JUST A NOTE: the word “trial” is, well, trivial...before accounting became on the              computer, people had to create a trial balance by hand to make sure everything              balanced; most accounting software programs (i.e. QuickBooks) have controls in place               to make sure that incorrect entries cannot be entered  It is important to know that journals, ledgers, etc. are all connected, starting with the very first part of  the transaction. Below is a demonstration as to how this works. I found it was easier with a visual aid.     This is an example of how a sales order gets entered into it’s respective journal. Below is how it affects  everything else so far as journals/ledgers:     So, to further explain, we post from the specialized journal to either the subsidiary ledger or the  general ledger, which then leads into a trial balance. From the general ledger we create financial  statements. The reconciliation is important, but make sure you’re ONLY RECONCILING to make sure  there are no errors, there will be no postings from one ledger to the other.   VERY IMPORTANT NOTE:  do not post from the subsidiary journal or ledger to the  original journal or ledger because subsidiaries are their own entity!  AIS TERMINOLOGY:   ​ Receipts: ​ cash coming i​ nto your company  ​ Payments: ​ cash going ​away from your company  ​ Purchase: ​ cash payment or purchase on account (credit) made b vendor  ​ ​ Vendor Invoice: ​ an invoice r ​ eceived from an ​external supplier when your company purchases from the  ​ external vendor; cash disbursement usually follows a vendor invoice  ​ Sale:​ this implies revenue o ​ f your company  ​ Sales Invoice: ​ implies sale revenue o NOW, ONTO THE IN-CLASS NOTES: Our professor administers an in­class guideline to his notes based on what he will require us to know  from the test. I will lean more heavily towards taking notes with this material.   The term “third party” is referred to frequently. In auditing, the client is the first party, the auditor is  the second party, and everyone else is a third party (i.e. the government, a firm, etc.)  As an auditor, our job is to: “seek persuasive evidence to provide reasonable assurance that that  account is free of material mistakes” ­ this is important if you are taking professor Donelan’s class, he  uses this basically as the definition of an auditor  ATTEST:​ you’re giving something believability or assurance or credibility; to stand behind  someone/something/some quality; attest includes a 3rd party user;  INCLUDES: examination of financial forecasts; review engagement; non­audit reports on  internal                control; agreed­upon procedures; the auditing of: financial statements, compliance, and  internal                control  ASSURANCE SERVICES:​ NO 3RD PARTY but everything else is the same  Non­Assurance, Non­Attest Accounting Services:​ includes compilations, tax prep and planning,  personal finance planning, business planning, etc.   WE WILL BE FOCUSING ON ASSURANCE/ATTEST SERVICES.   The word “audit” has a negative connotation, does it not? But you might be surprised to find that ​BIG  ​ ​ ​ COMPANIES WANT AN AUDIT. This proves that they have integrity and again, so that there is  “reasonable assurance that the statements are free from material mistakes”.   This creates a company’s weighted average cost of capital to lower, their loan rate will be  lower;                 this creates more money for the shareholders  Financial Forecasts:​ “a forecasted income statement”; present the financial statement to a 3rd party  so a CPA can perform an examination ­ includes attest procedures including “evaluation of the  underlying assumptions and other procedures in accordance with a published AICPA standard”  Review Engagement:​ attestation service where “the independent accountant performs analytical  procedures, makes inquiries of client personnel, and issues a report that provides limited assurance”.  Compilation Engagement:​ not an audit or an attest, but it is when an accountant prepares financial  statements and presents them without an assurance to a CPA  Here’s the difference between an audit, review, and compilation:       Financial statement audit:​ in compliance with IFRS and/or GAAP  Compliance audit:                 ​characteristics ­ usually with a third party standard;   ex. A franchisee is required by the head corporation/franchisor (McDonald’s example) for an                OSHA audit of his building and an auditor comes in; the third party creates the standard; in                compliance with grants (the universities have a lot of grants because they are non­profit)  Operational Audit:​ is a study of a specific unit of an organization for the purpose of measuring its  performance. ex. Disney: make sure the cast has efficiency and effectiveness to get to and from their  destination, that there are good conditions (A/C, transportation), etc.   Integrated Audit ­ two separate audit opinions:   Audit of Financial Statements and Audit of Internal Control (to make sure there are controls                installed, designed correctly, and they WORK ­ designed, installed, and implemented)  AICPA:​ American Institute of Certified Public Accountants; the people who create the standards that  auditors use  PCAOB:​ Public Company Accounting Oversight Board; oversees the audits of public companies; five  member board;   SEC:​ Securities and Exchange Commission; oversees organizations and individuals in the security  market, i.e. investments; provides the public with access to statements and reports; brings cases of  civil enforcement against firms/individuals that violate security laws;   ADDITIONAL INFO:  (I pulled this from my professor’s notes and summarized the info)  Any business, firm, company, etc. that trades its equity or debt in the form of stock, bonds, or notes,  in more than one state is underneath the 1993 Securities Act; they’re required to register under the  SEC and follow the rules/regulations; include: submitting financial reporting according to SEC  regulations; below are examples of entities subject to the SEC:   ­ Issuers  ­ Registered Companies  ­ Public Companies  ­ Publicly Traded Company  NOT SUBJECT TO SEC:   ­ Non­Issuer  ­ Nonpublic  ­ Private  ­ Privately Held  ­ Family Owned  IFAC:​ International Federation of Accountants; the body that issues international standards for  auditing   That concludes chapter One! I hope this helps even though it is a little late. This information will be what he uses to select questions for the final! Plus, it’s a really great review of Chapter One!


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