1 Chapter 16 Completing the Tests in the Sales and Collection Cycle Accounts Receivable

2 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.

3 Analytical Procedures - Planning

4 Substantive Analytical - Planning

5 What is the objective of AU-C section 500? Meredith

6.04 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. AU-C 500 Audit Evidence

7 Levi How does detection risk get reduced ?

8 David describe the audit risk model ?

9 Audit Risk Model

10 Jordan pretend GAAS requires AAR ≤.05 Controls are ineffective, we assess CR (RoMM) as MAX Which audit approach are we going to take ?

11 Priya pretend GAAS requires AAR ≤.05 Controls are ineffective, w e assess CR as MAX (1.00) We are taking the Primarily Substantive Approach What is the Planned Detection Risk ?

12 John 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 ?

13 Mackenzie 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?

14 Cody pretend GAAS requires AAR ≤.05 Controls are effective, we assess CR (RoMM) as 0.03 Which audit approach will we take ?

15 This is a bit of a trick question Peter 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 ?

16 Joseph Which assertions relate to Account Balances?

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18 Algernon Describe Vouching Describe Tracing

19 Garren If we are auditing assets are we most concerned with overstatementor understatement

20 Jeanette If we are auditing LIABILITIES are we most concerned with overstatementor understatement

21 Pei If we are auditing Sales or Revenues are we most concerned with overstatementor understatement

22 Meredith If we are auditing EXPENSES are we most concerned with overstatementor understatement

23 Juancarlos If we are auditing Accounts Receivable are we most concerned with Existence or Completeness

24 Emily If we are auditing Cash Receipts are we most concerned with Occurrence or Completeness

25 Julia If we are auditing CASH DISBURSEMENTS are we most concerned with Occurrence or Completeness

26 Melissa what are the three types of substantive tests?

27 Analytical Procedures - Substantive

28 aged trial balance page 285

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30 Jo Ellen with which financial statement assertion might the aged trial balance be helpful ? Figure 3 page 285

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33 Bart 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

34 Juancarlos what are two forms of receivables confirmations ?

35 forms of receivables confirmations ? positive p 291 blank form negativep 291

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38 Maintaining control of the confirmation process

39 alternative procedures --- p. 294 subsequent cash receipts Or Vouch from Acc Rec subsidiary ledger to Invoice to Shipping Doc to Sales Order to Customer Order or Purchase Order

40 Valuation & allocation Page 298 Valuation & allocation

41 Valuation & allocation

42 Accounts Receivable cut-off

43 David Accounts receivable Are you going to audit the last 25 entries prior to 12/31/14 or the first 25 entries after 1/1/15

44 Pei will you Vouch orTrace ?

45 John what does the evidence indicate if we Vouch the last 25 entries in the Accounts Receivable account to shipping documents prior to 12/31/14

46 Jeanette what does the evidence indicate if we Vouch the last 25 entries in the Accounts Receivable balance to shipping documents dated after 1/1/15

47 shipping documents accounts receivables (& sales) cut-off at the loading dock

48 shipping documents goods shipped in

49 Mackenzie do you want to audit the last 25 orders that were actually shipped prior to 12/31/14 or the first 25 orders that were shipped on January 1, 2015

50 Cody will you Vouch orTrace ?

51 Garren what would the evidence indicate if you traced the first 25 shipments of 2015 into the 2015 Accounts Receivable balance

52 Joseph what would the evidence indicate if you traced the first 25 shipments of 2015 into the 2014 Accounts Receivable balance

53 Algernon 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

54 Emily 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

55 Cash cut off

56 Meredith Cash Receipts Journal Are you going to audit the last 25 entries in CR Jnl the prior to 12/31/14 or the first 25 entries in the CR Jnl after 1/1/15

57 Levi cash receipts - will you Vouch orTrace ?

58 Jordan cash receipts other than cutoff with which financial statement assertion are we most concerned if we are auditing cash receipts as of Dec. 31 st ?

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60 Julia cash receipts Vouching the last 25 entries in the cash receipts journal prior to 12/31/14 ? Give an example of evidence that indicates the recorded balance is correct

61 Priya cash receipts Vouching the last 25 entries in the cash receipts journal prior to 12/31/14 ? Give an example of evidence that indicates the recorded balance is overstated

62 Peter 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 1 st 2015

63 Melissa cash disbursements with which financial statement assertion (other than cutoff) are we concerned if we are auditing cash disbursements ?

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65 Jo Ellen cash disbursements Vouching the first 25 entries in the cash disbursements journal after 1/1/2015 ? Give an example of evidence that indicates the recorded balance is correct

66 ??? cash disbursements Vouching the first 25 entries in the cash disbursements journal after 1/1/2015 ? Give an example of evidence that indicates the recorded CASH balance is overstated

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