Chapter 16 Completing the Tests in the Sales and Collection Cycle Accounts Receivable
The introduction … she discovered that a new real-time system for processing sales transactions had been implemented Susan’s substantive tests of transactions identified misstatements.
Analytical Procedures - Planning page 424
Analytical Procedures - Planning
Jane What is the objective of AU-C section 500?
AU-C 500 Audit Evidence .04 The objective of the auditor is to design and perform audit procedures that enable the auditor to obtain sufficient appropriate audit evidence to be able to draw reasonable conclusions on which to base the auditor's opinion.
Kirissa describe the audit risk model ?
Audit Risk Model
Michelle How does detection risk get reduced ?
Felix pretend GAAS requires AAR ≤ .05 Controls are ineffective, we assess CR (RoMM) as MAX Which audit approach are we going to take ?
Dorian pretend GAAS requires AAR ≤ .05 Controls are ineffective, we assess CR as MAX (1.00) We are taking the Primarily Substantive Approach What is the Planned Detection Risk ?
Danny pretend GAAS requires AAR ≤ .05 Controls are effective, not great but Somewhat effective and we assess CR (RoMM) as 0.25 What is the Planned Detection Risk ?
Hailee pretend GAAS requires AAR ≤ .05 Controls are effective, not great but somewhat effective and we assess CR (RoMM) as 0.25 Which audit approach will we take?
John pretend GAAS requires AAR ≤ .05 Controls are effective, we assess CR (RoMM) as 0.03 Which audit approach will we take ?
Haley This is a bit of a trick question pretend GAAS requires AAR ≤ .05 Controls are effective, we assess CR (RoMM) as 0.03 We will take the Reduced Level of Control Risk Approach What is the Planned Detection Risk ?
Cole Which assertions relate to Account Balances?
Table 6-3 Page 159 (166)
Max Describe Vouching Describe Tracing
Navid If we are auditing assets or sales are we most concerned with overstatement or understatement
Genna If we are auditing LIABILITIES or EXPENSES are we most concerned with overstatement or understatement
Stephanie If we are auditing Accounts Receivable are we most concerned with Existence or Completeness
Jenna If we are auditing Cash Receipts are we most concerned with Occurrence or Completeness
Sammie If we are auditing CASH DISBURSEMENTS are we most concerned with Occurrence or Completeness
Mitchell what are the three types of substantive tests?
Analytical Procedures - Substantive
aged trial balance page 532 (426)
Kyle with which financial statement assertion might the aged trial balance be helpful ? Figure 3 page 532 (426)
Sofia which opinion do we issue while attempting to confirm the client’s accounts receivables – the client will not provide you the necessary information to confirm many of their largest customers
Mark what are two forms of receivables confirmations ?
forms of receivables confirmations ? positive p 539 (433) blank form negative p 540 (434)
Maintaining control of the confirmation process
alternative procedures --- p. 541 (436) subsequent cash receipts Or Vouch from Acc Rec Trial Balance (subsidiary ledger) to Invoice to Shipping Doc to Sales Order to Customer Order or Purchase Order
page 545 (439) Valuation & allocation Valuation & allocation
Valuation & allocation
Accounts Receivable cut-off 12-31-17
Hannah Accounts receivable Are you going to audit the last 25 entries prior to 12/31/17 or the first 25 entries after 1/1/18
will you Vouch or Trace ?
Malcolm what does the evidence indicate if we Vouch the last 25 entries in the Accounts Receivable account to shipping documents prior to 12/31/17
Mikey what does the evidence indicate if we Vouch the last 25 entries in the Accounts Receivable balance to shipping documents dated after 1/1/18
shipping documents accounts receivables (& sales) cut-off at the loading dock
shipping documents goods shipped in 2017 2018
Julia L do you want to audit the last 25 orders that were actually shipped prior to 12/31/17 or the first 25 orders that were shipped on January 1, 2018
Laura will you Vouch or Trace ?
Nik what would the evidence indicate if you traced the first 25 shipments of 2018 into the 2018 Accounts Receivable balance
Austin what would the evidence indicate if you traced the first 25 shipments of 2018 into the 2017 Accounts Receivable balance
the client refuses to adjust their Courtney what opinion do we issue while performing substantive tests you detect material misstatements that cause accounts receivable to be materially overstated the client refuses to adjust their financial statements
Julia B what does it imply about the effectiveness of the internal controls while performing substantive tests you detect material misstatements that cause accounts receivable to be materially overstated
Cash cut off 12-31-17
Jane Cash Receipts Journal Are you going to audit the last 25 entries in CR Jnl the prior to 12/31/17 or the first 25 entries in the CR Jnl after 1/1/18
Kirissa cash receipts - will you Vouch or Trace ?
Michelle cash receipts other than cutoff with which financial statement assertion are we most concerned if we are auditing cash receipts as of Dec. 31st?
Felix cash receipts Vouching the last 25 entries in the cash receipts journal prior to 12/31/17 ? Describe evidence that indicates the recorded balance is correct
Dorian cash receipts Vouching the last 25 entries in the cash receipts journal prior to 12/31/17? Describe evidence that indicates the recorded balance is overstated
Danny Cash Disbursements Journal will you audit the last 25 entries in the CD Jnl prior to Dec. 31st or the first 25 entries in the CD Jnl after Jan 1st 2018
Hailee cash disbursements with which financial statement assertion (other than cutoff) are we concerned if we are auditing cash disbursements ?
John cash disbursements Vouching the first 25 entries in the cash disbursements journal after 1/1/2018 ? Describe evidence that indicates the recorded balance is correct
Haley cash disbursements Vouching the first 25 entries in the cash disbursements journal after 1/1/2018 ? Give an example of evidence that indicates the recorded CASH balance is overstated