17-1.

Investing activities represent the purchase and sale of land, buildings,

equipment, and other assets not generally held for resale. In addition,
investing activities include the purchase and sale of financial instruments
not intended for trading purposes (discussed in chapter 18). Financing
activities include transactions and events whereby cash is obtained from or
repaid to creditors (debt financing) or owners (equity financing). Financing
activities would include, for example, acquiring debt, capital leases, issuing
bonds, or issuing preferred or common stock. Financing activities would
also include payments to retire debt, reacquiring stock (treasury stock), and
the payment of dividends.

17-12. a. There is considerable variation in the importance of long-term debt

in financial statements. In some companies with strong free cash
flows, debt is immaterial. In other companies, such as public utilities,
long-term debt may be more than 50% of total equities. Stockholder’s
equity is clearly material to the balance sheet. The income statement
effects and the effect of dividends on the retained earnings
statement is often material. Inherent risk for financing transactions is
generally moderate as transactions occur infrequently.

b. Following are several examples of analytical procedures and how

they might be used to identify potential misstatements in debt
financing transactions.

Ratio Audit Significance

Free Cash Flow Negative free cash flows indicate the need for, and
approximate amount of, expected financing to prevent
drawing down on cash or investments.
 Ratio Audit Significance
Interest Bearing Debt Provides a reasonableness of the entity’s proportion of
to Total Assets debt that may be compared with prior years’ experience
or industry data.
Shareholders’ Equity Provides a reasonableness of the entity’s proportion of
to Total Assets equity that may be compared with prior years’ experience
or industry data.
Comparing Return If a company is able to generate a higher rate of return on
on Assets with the assets than its incremental cost of debt, this is a signal that
Incremental Cost of an entity may use debt financing to expand the assets and
Debt earnings of the entity.

Current Portion of A test of the entity’s ability to service its financing

Debt and Dividends obligations. Ratios less than 1.0 indicate potential liquidity
to Cash Flow from problems.
Operations
Times Interest Earned A test of the entity’s ability to generate earnings to cover
cost of debt service. Ratios less than 1.0 indicate that the
entity’s earnings are insufficient to cover financing costs.
Interest Expense to A reasonableness test of recorded interest expense that
Interest Bearing Debt should approximate the entity’s average cost of debt
capital.

18-1. The nature of investments in securities issued by other entities the ownership of
certificates of deposit, preferred and common stocks of other entities, and corporate and
government bonds. The audit area of investments in marketable securities interfaces with
two other cycles. The receipt of interest and dividends from investments relates to the
revenue cycle. The purchase of securities for cash pertains to cash disbursement
transactions in the expenditure cycle.

18-10. Cash accounts that should be included as cash balances on the balance sheet include
undeposited receipts on hand, cash in bank in general checking and saving accounts, and
imprest accounts such as petty cash and payroll bank account. Cash accounts that should
not be classified as cash balances on the sheet include certificates of deposit, bond
sinking fund cash, certain foreign currency balances, and other accounts that have
restrictions on their use. These accounts should be classified as investments.
18-16. a. Kiting is an irregularity in which a bank transfer is recorded as a deposit in the
receiving bank and is intentionally not recorded as a deduction from the bank on
which it is drawn. To illustrate, an unauthorized check is drawn on bank A to
cover a shortage in bank B. The check is included in the December 31 deposit of
bank B. However, no December book entries are made for the check on Bank A.

b. Kiting can be detected by (1) tracing bank transfers and (2) by using a bank cutoff
statement.

18-18 a. Lapping is an form of fraud that results in the deliberate misappropriation of cash
receipts. It may involve either a temporary or a permanent abstraction of cash
receipts for the personal use of the individual perpetrating the unauthorized act.

b. Lapping is usually associated with collections from customers, but it may also
involve other types of cash receipts. Conditions conducive to lapping exist when
an individual who handles cash receipts also maintains the accounts receivable
ledger.
18-26. (Estimated time - 25 minutes)

a. Substantive Test b. Financial Statement c. Type of

Assertion Evidence
1. Recalculate revenue earned Valuation of allocation Mathematical
2. Vouch entries in investment All assertions Documentary
accounts to broker’s advice.

3. Confirm securities held by Existence or occurrence, Confirmation

others
4. Inspect and count securities
on hand
5. Vouch entries in investment
accounts to broker’s advice.
6. Inspect and count securities
on hand
7. Review documentation
concerning market values
8. Verify accuracy of balances,
schedules and subsidiary
ledgers
9. Compare statement
presentation with GAAP
10. Compare statement
presentation with GAAP
completeness, rights and
obligations
All except rights and Physical, documentary
obligations
All assertions Documentary
All except rights and Physical, documentary
obligations
Valuation or allocation Documentary
Valuation or allocation Mathematical
Presentation and disclosure Documentary
Presentation and disclosure Documentary
18-31. (Estimated time - 25 minutes)
Other Audit Procedures
Sources of debit entries in general ledger cash
account, other than from cash receipts journals,
should be investigated and supporting
documents examined.
A surprise examination of cash receipts should
be performed. Prior to the accounts receivable
clerk obtaining the cash receipts, the auditor
should make a list of them without the clerk's
knowledge. The undeposited mail receipts
should then be controlled after completion of
their preparation for deposit and after postings
have been made to the subsidiary accounts
receivable ledger. The deposit slip should be
totaled and compared to the remittances and
the list prepared by the auditor for accuracy.
Individual items on the deposit slip should be
compared to postings to the subsidiary
accounts receivable ledger. The auditor should
ask Gutzler to ask the bank to send the
statement containing that deposit directly to
the auditor.
Postings from other deposit slips should be
traced to the cash receipts journal and the
subsidiary accounts receivable ledger. Also,
entries in the subsidiary accounts receivable
ledger should be traced to the cash receipts
journal and to the deposit slips.
Review the subsidiary accounts receivable
ledger and confirm accounts that have
abnormal transaction activity such as
consistently late payments.
Reason for Other Audit Procedures
Since the auditor, using standard
procedures, only examines the cash receipts
journal, he or she must investigate the
validity of all other sources of cash receipts
which are not recorded in these journals.
Since there are no initial controls over cash
receipts established prior to the time the
accounts receivable clerk obtains the cash, a
surprise examination is the only method of
determining if cash receipts are being
recorded and deposited properly.
Since there is no separation of duties
between cash receipts and accounts
receivable, the accounts receivable clerk
may have been careless in performing
posting duties. This procedure may also
disclose whether the accounts receivable
clerk may have been lapping the accounts.
Once more, there is no separation of duties
between cash receipts and accounts
receivable. If the accounts receivable clerk
was careless in performing posting duties,
this procedure may also disclose whether
the accounts receivable clerk may have been
lapping the accounts.
 Other Audit Procedures
If Gutzier allows customers to take discounts,
the amount of such discounts and the discount
period should be checked.
Dates and amounts of daily deposits per bank
statements should be compared with entries in
the cash receipts journal
A proof-of-cash working paper should be
prepared which reconciles total cash receipts
with credits per bank statements. The opening
and closing reconciliation of the proof of cash
should be compared to the comparable
reconciliation prepared by the controller.
Prepare a ratio analysis of monthly collections
to total sales of the preceding month or
monthly collections to total accounts
receivable at the beginning of the month and
compare this analysis with a similar analysis
for the preceding year.
Visit the client on the balance sheet date or the
next business day to determine that an
appropriate cutoff of cash receipts has been
made.
For those periods for which the above audit
procedures were not performed and for a
period after the balance sheet date, scan the
cash receipts journal and bank statements for
unusual items.
Reason for Other Audit Procedures
Since there is no separation of duties
between cash receipts and accounts
receivable, the accounts receivable clerk
may have appropriated discounts which
could have been, but were not, taken, or
may have been careless in checking the
appropriateness of discounts taken.
Since there are no initial controls over cash
receipts established prior to the time the
accounts receivable clerk obtains the cash,
the clerk may have become careless about
promptly depositing the daily receipts.
Since internal control over cash receipts is
weak, the auditor should perform that
overall check to help substantiate that he or
she has investigated all material items
during the detail tests.
Since internal control over cash receipts is
weak, this overall test may highlight points
of irregularities, is such exist.
Since internal control over cash receipts is
weak, the auditor needs to be satisfied that
cash receipts are recorded in the appropriate
period.
Since internal control over cash receipts is
weak, the auditor should perform that
review to help substantiate that all material
items not covered during other tests have
been investigated.
19-1. The three categories of activities in completing the audit are (a) completing field work,
(b) evaluating the findings, and (c) communicating with the client.

19-3. a. Subsequent events are events that occur between the balance sheet date and the
issuance date of the auditor's report (which is not the same as the date of the
report) that may affect the financial statements on which the report is rendered.
The subsequent events period extends from the balance sheet date to the end of
field work on the engagement.

b. The types are:

 Type 1 consists of those events that provide additional evidence with respect to
conditions that existed at the date of the balance sheet and affect the estimates inherent
in the process
of preparing financial statements.
 Type 2 consists of those events that provide evidence with respect to
conditions that did not exist at the date of the balance sheet but arose
subsequent to that date.
 Type 1 events require adjustment of the financial statements. Type 2 events
require disclosure, and in very material cases, by attaching pro-form data to
the financial statements.

c. The auditor is required by GAAS to search for and to evaluate subsequent events
up to the date of the auditor's report, which should be as of the end of field work.
This responsibility is discharged by (1) being alert for subsequent events in
performing year-end substantive tests after the balance sheet date, and (2)
performing specific procedures at or near the completion of field work.
19-25. (Estimated time - 25 minutes)

Item Required Disclosure or

No. Audit Procedures Entry and Reasons
1. Goods in-transit would be detected in the course The receipt of the goods provides additional
of the auditor's review of the year-end cutoff of evidence with respect to conditions that existed at
purchases. The auditor would examine receiving the date of the balance sheet and hence the
reports and purchase invoices to make certain financial statements should be adjusted to take
that the liability to suppliers had been recorded into account such additional information.
for all goods included in inventory, and that all
goods for which the client was liable at year end
were recorded in inventory.
2. Settlements of litigation would be revealed by Settlements of litigation would require an
requesting from the company's legal counsel a adjustment of the financial statements since the
description and evaluation of any litigation, events that gave rise to the litigation had taken
impending litigation, claims, and contingent place prior to the balance sheet date.
liabilities of which he or she has knowledge that
existed at the date of the balance sheet being
reported upon, together with a description and
evaluation of any additional matters of a like
nature which come to his or her attention up to
the date the information is furnished. A review
of cash disbursements for the period between the
 Item
No. Audit Procedures
balance sheet date and completion of field work
may also reveal evidence of the settlement.
3. The purchase would normally be Revealed in
general conversations with the client and would
further be detected by reading the minutes of
meetings of stockholders, directors, and
appropriate committee. In addition, because the
amount paid is likely to be unusually large in
relation to other cash disbursements, a review of
cash disbursements for the period between the
balance sheet date and completion of field work
is likely to reveal such an extraordinary
transaction. Moreover, because a purchase of a
business usually requires a formal purchase
agreement, the letter from the firm's legal
counsel would probably have revealed the
purchase.
4. Inventory losses attributable to a flood would be
brought to the auditor's attention through
inquires and discussions with corporate officers
and executives. Moreover, the auditor would
know the location of the plants and warehouses
of clients and upon becoming aware of any
major floods in such a location, he or she would
investigate to determine if the client's facilities
had suffered any damage.
5. The sale of bonds or other securities would
require a filing with the SEC in which the
auditor would presumably be involved. In
addition, the sale would be revealed by reading
the minutes of directors and finance committee's
meetings, by corresponding with the client's
attorneys and by examining the cash receipts
books in the period subsequent to the balance
sheet date for evidence of unusually large
receipts.
19-32. (Estimated time - 30 minutes)
a. 1. 1--subsequent event during the subsequent event period requiring
adjustment.
2. 1--subsequent event during the subsequent event period requiring
adjustment.
3. 2--subsequent event during the subsequent event period requiring
disclosure.
Required Disclosure or
Entry and Reasons
The purchase of a new business is not an event
that provides evidence with respect to conditions
existing at the balance sheet date; hence, it does
not require adjustments in the financial
statements. However, such an event would
normally be of such importance that disclosures
of it is required to keep the financial statements
from being misleading. If the acquisition is
significant enough, it might be advisable to
supplement the historical statements with pro-
forma statements indicating the financial results if
the two firms had been consolidated for the year
ending December 31, 19XO. Otherwise,
disclosure in footnotes to the financial statements
would be adequate. Occasionally, a situation of
this type may have such a material impact on the
entity that the auditor may wish to include in the
audit report an explanatory paragraph directing
the reader's attention to the event and its effect.
Losses attributable to floods subsequent to the
balance sheet date to not provide in formation
with respect to conditions that existed at the
balance sheet data; hence, adjustment in the
financial statements is not required. However,
because the losses are material, they should be
revealed in footnotes to the financial statements.
Occasionally, situation of this type may have
such a material Impact on the entity that the
auditor may wish to include in the audit report an
explanatory paragraph directing the reader's
attention to the event and its effect.
Sales of bonds or capital stock are transactions of
the type that do not provide information with
respect to conditions that existed at the balance
sheet date; hence, adjustment of the financial
statements is not required. However, such sales
may be of sufficient importance to require
footnote disclosure. Occasionally, a situation of
this type may have such a material impact on the
entity that the auditor may wish to in the audit
report an explanatory paragraph directing the
reader's attention to the event and its effect.
 4. 2--subsequent event during the subsequent event period requiring
disclosure
5. 1--subsequent event during the subsequent event period requiring
adjustment.
6. 4--subsequent event occurring after field work but before issuance of
report.
7. 4--subsequent event occurring after field work but before issuance of
report.
8. 5--postaudit discovery of facts existing at date of report.

The date field work is completed is not specifically given. This answer is based
on the customary practice of dating the audit report as of the end of field work
(i.e., February 26).

b. For categories (1) and (2) the auditor has the responsibility for identifying and
evaluating subsequent events up to the date of the auditor's report. In discharging
this responsibility, the auditor should be alert for subsequent events in performing
substantive tests, and also perform specific auditing procedures at or near the
completion of field work.

For categories (3) and (4), the auditor has no responsibility to make inquiry or to
perform any auditing procedures during this time period to discover subsequent
events. However, if knowledge of such an event comes to the auditor's attention,
he or she should determine whether the event requires adjustment of or disclosure
in the financial statements.

For category (5), the auditor has no responsibility for their discovery. However, if
the auditor becomes aware of such facts and the facts may have affected the report
that was issued, the auditor is required to ascertain the reliability of the
information.

c. Information about the items would be obtained from the following:

1. Inquiry of management; client "rep" letter.
2. Review of bad debt write-offs in January.
3. Reading of minutes.
4. Observation of fire; newspaper account of fire; inquiry of management.
5. Inquiry of management; lawyer's letter; and client "rep" letter.
6. Reading of minutes.
7. Newspaper story on takeover; inquiry of management.
8. Inquiry of management; lawyer's letter; and client 'rep" letter.

d. If the client fails to make required disclosure, the auditor should notify each
member of the board of directors of such refusal and take the following steps to
prevent further reliance on the audit report and:
 Notify the client that the audit report must no longer be associated with the
financial statements.
  Notify regulatory agencies having jurisdiction over the client that the report
should no longer be relied on.
 Notify (generally via the regulatory agency) each individual known to be
relying on the statements that the report should no longer be relied on.

20-1. a. Four levels of assurance that can be rendered by CPAs in a variety of

engagements are (1) audit or examination level assurance, (2) review level
assurance, (3) agreed-upon procedures level of assurance, and (4) no assurance.

b. The following table summarizes the 3 groups of professional standards that are
issued by the Auditing Standards Board with examples of engagements that may
be provided under each group of professional standards.

Group of Professional Example Engagements

Standards
Statements on Auditing Special reports include reports on:
Standards  Financial statement that are prepared in
conformity with a comprehensive basis of
accounting other than GAAP (OCBOA).
 Specified elements, accounts or items of a
financial statement.
 Compliance with aspects of contractual
agreements or regulatory requirements
related to audited financial statements.
 Financial information presented in prescribed
forms or schedules that require a prescribed
form of auditor’s report.

Statements on Standards for Attest engagements include engagements such as:

Attestation Engagements
Statements and Standards for
Accounting and Review Services
 SSAE 101 engagements
 Agreed-upon procedures engagements
 Reporting on Prospective Financial
Information
 Reporting on Compliance Attestations
 Reporting on Pro Forma Information
 Reporting on Internal Control
 Reporting on Management’s Discussion and
Analysis
SSARS engagements include issuing the
following levels of assurance on the financial
statements of private companies:
 Review level assurance
 Compilation level assurance
20-3. a. A basis of accounting is considered to be an "other comprehensive basis of
accounting" (OCBOA) when it is
 A basis used to comply with the requirements or financial reporting provisions
of a governmental regulatory agency.
 A basis used to file an income tax return.
 The cash receipts and disbursements basis of accounting and modifications of
the cash basis having substantial support.
 A basis that uses a definite set of criteria that has substantial support such as
the
price-level basis of accounting.

b. The reporting requirements for financial statements prepared on an OCBOA are:

 A title that includes the word independent.
 An introductory paragraph that is the same as in the auditor's standard report
except that more distinctive titles should be used for the financial statements,
such as statement of assets and liabilities arising from cash transactions.
 A scope paragraph that is the same as in the auditor's standard report.
 A paragraph that states (1) the basis of presentation and refers to the note to
the
financial statements that describes the basis and (2) the financial statements
are not intended to be a presentation in conformity with GAAP. If the first
category of OCBOA is involved, this paragraph should also indicate that the
distribution of the report is restricted to those within the entity and the
regulatory agency.
 An opinion paragraph that expresses the auditor's opinion (or disclaims an
opinion) on whether the financial statements are presented fairly, in all
material respects, in conformity with the basis of accounting described.

20-19. (Estimated time - 25 minutes)

a.
Independent Auditor's Report

We have audited the accompanying statement of assets and liabilities arising from
cash transactions of Jiffy Clerical Services as of December 31, 20XO, and the
related statement of revenue collected and expenses paid for the year then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based on
our audit.

We conducted our audit in accordance with generally accepted auditing standards.

'nose standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
 management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

As described in Note X, these financial statements were prepared on the basis of

cash receipts and disbursements, which is a comprehensive basis of accounting
other than generally accepted accounting principles.

In our opinion, the financial statements referred to above present fairly, in all material
respects, the assets and liabilities arising from cash transactions of Jiffy Clerical Services
as of December 31, 20XO, and its revenue collected and expenses paid during the year
then ended, on the basis of accounting described in Note X.

Signature

Date

b. Modifications of standard report:

 The introductory paragraph has more distinctive titles for the financial
statements--e.g., statement of assets and liabilities arising from cash
transactions.
 An explanatory paragraph follows the scope paragraph and states the basis of
presentation and refers to the note to the financial statements that describes the
comprehensive basis of accounting other than GAAP.
 An opinion paragraph that expresses an opinion (or disclaims an opinion) on
whether the financial statements are presented fairly, in all material respects,
in conformity with the basis of accounting described.

21-1
a) Audit internal lebih merupakan fungsi manajemen, hal ini karena audit dapat membantu
manajemen dalam mengelola fungsi bisnis berjalan lebih efektif.

b) prosedur audit yang diperlukan untuk mencapai tujuan audit dianggap sebagai ruang lingkup
audit. Tujuan audit laporan keuangan adalah untuk mengetahui apakah laporan keuangan disusun
dengan benar atau tidak. Juga diperiksa bahwa laporan keuangan sesuai dengan semua hal yang
material dan dipersiapkan sesuai dengan kerangka pelaporan keuangan yang berlaku

21-2
a) 1. Tentukan Sertifikasi yang Tepat untuk Anda
IIA juga menawarkan empat sertifikasi khusus:
Certification in Control Self-Assessment® (CCSA®)
Certified Government Auditing Professional® (CGAP®)
Certified Financial Services Auditor® (CFSA®)
Certification in Risk Management Assurance® (CRMA®)
2. Tentukan Tingkat Kelayakan dan Ketrampilan Anda
3. Mendaftar Ujian
4. Siapkan Ujian
5. Ikuti Ujian
6. Terima Sertifikat Anda

b) Maintaining Your CIA Certication

Setelah sertifikasi, anggota CIA harus mempertahankan pengetahuan dan keterampilan untuk
tetap mengikuti perbaikan dan perkembangan dalam standar audit internal, prosedur, dan teknik.
Anggota CIA harus menyelesaikan dan melaporkan pendidikan profesional berkelanjutan selama
minimal 80 jam/kredit setiap dua tahun. Mereka yang gagal memenuhi persyaratan ini dengan
batas waktu pelaporan akan dinyatakan dalam status tidak aktif dan tidak dapat menggunakan
gelar mereka. Selain itu CIA harus setuju untuk mematuhi Standar Internasional IIA untuk
Praktek Profesional Audit Internal serta kode etik IIA.

21-5
Audit internal dapat didefinisikan sebagai kegiatan assurance dan konsultasi independen yang
bertujuan untuk menambah nilai dan memperbaiki operasi organisasi. Ini membantu organisasi
mencapai tujuannya dengan membawa pendekatan sistematis dan disiplin untuk mengevaluasi
dan meningkatkan efektivitas proses manajemen, pengendalian, dan tata kelola risiko. Standar
audit AICPA dan PCAOB menyatakan bahwa salah satu aspek lingkungan pengendalian
organisasi adalah metode pengendalian manajemen untuk memantau dan menindaklanjuti
kinerja, termasuk audit internal.
Sedangkan
Tujuan auditor eksternal adalah untuk melakukan audit terhadap laporan keuangan organisasi
dan untuk mengungkapkan pendapat atas pernyataan tersebut. Dalam mengaudit laporan
keuangan, auditor eksternal akan mempertimbangkan pengendalian yang mempengaruhi
keandalan informasi keuangan yang termasuk dalam laporan keuangan. Bagi perusahaan publik,
mereka mungkin juga dilibatkan untuk memeriksa asersi manajemen mengenai keandalan
pengendalian internal atas pelaporan keuangan. Auditor internal prihatin dengan semua kontrol,
terlepas dari apakah itu finansial, kepatuhan, atau operasional. Mereka menilai efektivitas dan
efisiensi segmen operasi di seluruh organisasi.