[jeff]

Welcome to the Q4 2016 CPA Exam Study Group for AUD.

If this is your first post in the study group – please post your target exam date (just the time frame to preserve your anonymity), and your past history with this exam (optional, of course).

Jeff Elliott, CPA (KS) | Another71 | NINJA CPA | NINJA CMA | NINJA CPE

[pharaoh]

@Just3Letters – Think about it as You can't record AR/Sales until you perform the service or deliver the goods or If you still have ownership of the inventory, you can't record it as sale until the ownership transfers to the buyer. As long as it is yours, you can't record it as a sale and you can't exclude it from your inventory yet.

FAR 8/2016
AUD 1/2017
REG TBD
BEC TBD

[HoosierCPA]

@just3letters it would be the entire transaction– whatever the FOB terms are is when the whole transaction takes place.

FAR - 78
REG - 72,74,71...please just go away REG nobody likes you!
BEC - 82
AUD - Aug 16

[HoosierCPA]

Transaction cycles dealing with securities specifically are AWFUL…Mainly due to the fact that I have no experience with securities so it's hard to apply real world experience.

For the confirming existence with of stock..they say confirm with the independent custodian rather then investee company.

Can someone explain the difference between these 2?

FAR - 78
REG - 72,74,71...please just go away REG nobody likes you!
BEC - 82
AUD - Aug 16

[pharaoh]

@dtatham10 – The custodian can be the broker like Fidelity who bought the Apple stocks for the company. Fidelity keeps the stocks in their custody (custodian) and whenever the company wants to sell, they ask Fidelity to sell them. So you confirm with Fidelity not with Apple.

FAR 8/2016
AUD 1/2017
REG TBD
BEC TBD

[HoosierCPA]

@Pharaoh wow, makes so much more sense! Thank you for breaking that down in layman's terms for me!

FAR - 78
REG - 72,74,71...please just go away REG nobody likes you!
BEC - 82
AUD - Aug 16

[Just3Letters]

@pharoh and @Dtatham10,

thank you guys so much! I got an entire practice Sim about those adjusting j/e's and I recognized the revenue at the wrong point. I'll get it right on the real test now!

FAR- 81
REG- 81
BEC- Aug 22, 2016
AUD- TBD

[HoosierCPA]

Select the internal control that most likely could assist MMI in preventing or detecting the sending of an invoice for shipped goods and its recording in the sales journal without being posted to any customer account.

A.Shipping documents are compared with sales invoices when goods are shipped.

B.Control amounts posted to the accounts receivable ledger are compared with control totals of invoices.– CORRECT

C.Shipping clerks compare goods received from the warehouse with approved sales orders.

D.Daily sales summaries are compared with control totals of invoices.

I was looking for an answer that tied the shipment to the invoice to the ledger but none of the answers provided that. For B…I guess using the word “control totals” means that the invoice was audited and confirmed???? My original thought was how does only tying an invoice to the ledger prove that the shipment was actually made–my only guess is the word “control” which I skimmed over when reading the question.

FAR - 78
REG - 72,74,71...please just go away REG nobody likes you!
BEC - 82
AUD - Aug 16

[HoosierCPA]

2nd one..then I'll leave you guys alone for a bit!

An auditor scans a client's investment records for the period just before and just after the year-end to determine that any transfers between categories of investments have been properly recorded. The primary purpose of this procedure is to obtain evidence about management's financial statement assertion of:

A.rights and obligations.

B.classification and understandability.

C.existence.

D.valuation and allocation. — CORRECT

I chose B –it appears the question is asking more about what “categories” the investment is recorded in rather then the value that its recorded at. However, Ninja didn't agree with me. They are saying dealing with year end transactions is a valuation assertion. Unfortunately Ninja does not explain how this does not assist in the classification assertion–any help?

FAR - 78
REG - 72,74,71...please just go away REG nobody likes you!
BEC - 82
AUD - Aug 16

[pharaoh]

@dtatham10 – for the 1st question, I don't know 🙂 Even though I understand the cycles, I easily fall in these questions, it is my worst section.

For the 2nd question, Investment categories(Trading, Available for sale or Held to Maturity) are all in the current assets and no classification as Short term debt and LT debt. However, the category affect their value, Trading and Available for sale are at FMV and Held to Maturity is at Amortized cost

FAR 8/2016
AUD 1/2017
REG TBD
BEC TBD

[HoosierCPA]

@Pharaoh thank you, that makes sense. I suppose question #2 is confusing because my lack of understanding securities. I appreciate the explanation!

FAR - 78
REG - 72,74,71...please just go away REG nobody likes you!
BEC - 82
AUD - Aug 16

[HoosierCPA]

QUIZ:

For uncorrected misstatements, the auditor should document all of the following, except:

A.all misstatements accumulated during the audit and whether they have been corrected.

B.the amount below which misstatements would be regarded as clearly trivial.

C.the size and nature of the misstatement.

D.the auditor's conclusion about whether uncorrected misstatements are material, individually or in the aggregate, and the basis for that conclusion.

FAR - 78
REG - 72,74,71...please just go away REG nobody likes you!
BEC - 82
AUD - Aug 16

[pharaoh]

I will go with C

FAR 8/2016
AUD 1/2017
REG TBD
BEC TBD

[HoosierCPA]

@pharaoh ding ding ding…now I wish I knew why you were correct. Ninja's explanation is literally…”The auditor should include in the audit documentation:” and then it rattles off all the choices besides C…doesn't do a great job at explaining.

I went with A…thinking surely you wouldn't document ALL misstatements…seems like some misstatements can be so minor that there is no way you would document..for instance if they audited petty cash and it was off 50 cents, you aren't going to document that….or would you lol.

FAR - 78
REG - 72,74,71...please just go away REG nobody likes you!
BEC - 82
AUD - Aug 16

[pharaoh]

I used elimination.
First of all, you document ALL misstatements (Answer A). you will document the 50 cents and put a comment that it is immaterial (which is Answer B)
Answer D, if you have materiality level is $50 and then while testing AR you found 3 misstatements, $10, $25 and $20, each misstatement alone is below materiality but all together (in aggregate) they are above materiality level.
At the end I was left with Answer C

Real life example, we were a team of 6 and each one of us is working on different section, in many cases the mistakes overlap, we used to have 1 spreadsheet that we would update with every misstatement and the suggested adjusting JV. At the end, we found 3 adjustments by 3 different members, each is immaterial individually but they are all hitting the same expense and their total is material. If each one of us ignored the immaterial adjustment, we could have ended up leaving the mistakes and said “it looks good”

FAR 8/2016
AUD 1/2017
REG TBD
BEC TBD

[HoosierCPA]

@pharaoh always great when you can fall back on real life examples. Thanks that helps a lot! C still is confusing to me–in your example if you would document the 50 cents isn't that documenting the “size” of the misstatement, maybe not the nature, but definitely seems to fall under the size category.

FAR - 78
REG - 72,74,71...please just go away REG nobody likes you!
BEC - 82
AUD - Aug 16

[Author]

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