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Account Cycles and Auditing

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Could you please answer two or three questions below?

1 - Discuss inherent risks for each of the reporting cycles. Explain how these are relevant to an auditor applying the ARM.
2 - Discuss types of evidence an auditor would focus on getting with respect to each of the accounting cycles.
3 - Provide examples of specific substantive tests and how they provide evidence for the reporting cycles auditing.
4 - Discuss inherent risks in a finance and investment cycle.
5 - Why should auditors have any responsibility related to subsequent events?

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5 - Why should auditors have any responsibility related to subsequent events?

A subsequent event is an event that takes place in between the date that the financial statements state, and the date of the auditor's report. This lapse of time is considered the time period for a subsequent event. When we have events or transactions that are material, which take place in this time window, it is imperative that the auditors have responsibility for those events. The reason is because of the material nature of certain ...

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This solution thoroughly addresses 2-3 of the account cycles and auditing questions listed.

See Also This Related BrainMass Solution

Audit objectives for Wal-Mart financial reporting cycle for revenue

Audit Program Development. Based on the findings of the Internal Controls Questionnaire prepare a list of audit objectives for Wal-Mart Financial Reporting Cycle for revenue.

Wal-Mart Stores, Inc. is a large chain of discount department stores, which has been branded as Wal-Mart. According to the Fortune Global 500, it is the world's largest publicly held corporation by revenue. Sam Walton founded the corporation in 1962 and incorporated in 1969. For the fiscal year ending January 2006, Wal-Mart reported a net income of $12 billion on $340 billion of sales revenue making it the 67th most profitable corporation.

Wal-Mart Incorporation

Assessment of Internal Controls

Financial Reporting Cycle

Objectives and Risks

Agency ____________________________ Year-End _________

Objectives Risks

All transactions are properly accumulated, classified and summarized in the accounts. •General ledger not in balance.
• Subsidiary ledgers not in balance with general ledger.
• Inconsistent application of accounting policies and procedures.

All closing entries are initiated by authorized personnel and reviewed and approved in accordance with established policies and procedures. •Inadequate closing procedures may result in confusion of responsibility, delay in completing the closing.
• Transactions improperly included or excluded as a result of inadequate cutoff procedures.
• Unauthorized or inappropriate journal entries.
•Inadequate support for journal entries.

All necessary data is obtained and processed in accordance with established policies and procedures. •Absence of adequate procedures may result in misclassification of balances, omission of an accounting unit, unacceptable delays and excessive work.
• Omission of information which should be provided in financial reports, lack of control over data submitted and review process.

All internal and public financial reports are prepared on the basis of appropriate supporting data, provide required information, and are reviewed and approved before issuance. •Financial reports not supported by underlying accounting records.
• Inconsistent presentation of financial data.
• Incomplete review of data, permitting possible errors or omissions.

Wal-Mart Incorporation

Assessment of Internal Controls

Financial Reporting Cycle

Control Policies and Procedures:

Agency__________________________ Year-End _________

Bolded questions identify critical controls. A critical control is a control that will prevent or detect an error in the event that all other controls fail.

A. Control Environment:

Yes No N/A

___ ___ ___ 1. Is there a formal plan under which responsibilities for the year end closing of the financial statements are clearly defined including target dates for completing tasks?

___ ___ ___ 2. Do written accounting policies and procedures exist and are they properly available and communicated to all applicable personnel?

___ ___ ___ 3. Is the general ledger chart of accounts properly maintained by authorized personnel?

___ ___ ___ 4. Is a competent individual assigned the responsibility to supervise the conversion from cash basis to modified accrual basis accounting for the year-end financial reporting?

___ ___ ___ 5. Does the agency maintain the trial balances, adjustments and supporting work papers to support the process of closing the general ledger and preparing financial statements and financial statement note disclosures?

___ ___ ___ 6. Are balances in the general ledger periodically substantiated, evaluated, reviewed, or supported by account reconciliations?

___ ___ ___ 7. Are the reconciliations of subsidiary ledgers to control accounts prepared and reviewed by someone other than the preparer on a monthly basis?

___ ___ ___ 8. Are revenue accounts reviewed to identify any deferred revenue?

___ ___ ___ 9. Are fund types reviewed to verify fund classifications?

___ ___ ___ 10. Are journal entries prepared and reviewed by someone other than the preparer?

___ ___ ___ 11. Is the supporting documentation attached to the journal entries and are they secure in a safe location?

B. Risk assessment
___ ___ ___ 1. Does Wal-Mart document operation of accounting applications and important control?
___ ___ ___ 2. Does Wal-Mart develop preliminary assessment of environment risk?
___ ___ ___ 3. Does Wal-Mart have a procedure to test operation of controls?
___ ___ ___ 4. Do Wal-Mart perform test of controls, with document results?
___ ___ ___ 5. Are sales of receivables recorded as sales rather than financing transactions?
___ ___ ___ 6. Is sales recorded only when shipment has occurred and the primary producing activity has preformed?
___ ___ ___ 7. Are all valid sales transactions recorded?

C. Control activities
___ ___ ___ 1. Are invoices posted to the correct general ledger accounts?
___ ___ ___ 2. Is the cash receipts recorded in a timely manner in the correct period of receipt?
___ ___ ___ 3. Is timely collection of accounts receivable monitored?
___ ___ ___ 4. Are all non-revenue related credits or adjustment to AR properly recorded and posted to the correct time period?
___ ___ ___ 5. Is all projects properly approved for pricing?
___ ___ ___ 6. Is sales recorded only when shipment has occurred and the primary producing activity has preformed?
___ ___ ___ 7. Do all applicable projects have accurate or reasonable budgets?
___ ___ ___ 8. Is segregation duties control put into place?

D. Information systems and communications
1. Are all computer programs password secured?
2.Are software programs only licensed by Wal-Mart used on computers?
3.Do the computers automatically log off when user steps away from computer?
4.Are programs and files from outside sources tested for viruses?
5.Is the critical information back upped?
6.Are critical and sensitive information password protected?
7.Are all computers protected by surge protectors?

E. Monitoring

___________ 1. Is the current process proving to effectively yield the relevance and adequacy of the Wal-Mart's current policy and also procedures?

___________ 2. Will the monitoring process adapt as the policy and procedures are updated to accommodate the Wal-Mart's needs?

___________ 3. How often is the monitoring system updating to ensure that all data is properly going to the correct areas as indicated?

__________ 4. Is the current monitoring system cost effective for Wal-Mart?

__________ 5. Who is in charge of the Wal-Mart's quality control? And is there a time limit of this person's or department's duties on how long this is done?

_________ 6. Are there management personnel decisions being monitored and if so how is that handled?

_________ 7. Is the monitoring of the revenue process done as an ongoing procedure, annually, or as needed?

_________ 8. Is there a different monitoring process for automated controls?

_________ 9. Are the deficiencies found in the monitoring process being reported to the proper authorities?


Management's Discussion and Analysis of Financial Condition and Results of Operations, (n.d.) 2009. Retrieved December 19, 2009 from http://walmartstores.com/

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