1. Audit of the Sales and Collection Cycle
Chapter 14
Audit of the Sales and Collection Cycle

2. Last 4 chapters
14- Audit of Sales and Collection Cycle: Tests of Controls and Tests of Transactions 16 - Completing the Tests in the Sales and Collections Cycle: Accounts Receivable 23- Audit of Cash and Financial Instruments 24- Completing the Audit

3. Felix
what are the primary transactions in the sales and collection cycle ?

4. Sales (cash sales and credit sales) Cash receipts
Sales returns and allowances
Write-off of uncollectible accounts
Bad debt expense
Page 448 (382)

5. Sales & Collection Transaction cycle
credit sales accounts receivable x.xx sales x.xx
cash receipts cash x.xx accounts rec x.xx
sales returns sales returns x.xx accounts rec x.xx
write-off accounts allow for DA x.xx accounts rec x.xx
estimate bad debt exp bad debt expense x.xx allow for DA x.xx

6. auditing transaction cycles chapter 14
Credit sales --- transactions
Cash receipts --transactions

7. auditing account balances
CH Sales
CH Cash
CH Accounts Receivable

8. Cash Receipts =
beginning Accounts Receivable
+ Sales
- ending Accounts Receivable
Sales =
end Acc Rec
+ Cash Receipt
– begin Acc Rec

9. Joe
the SEC requires four criteria be satisfied in order to recognize revenue
what are those four criteria ?

10. Revenue Recognition “SEC”
Persuasive evidence of an arrangement exists
Delivery has occurred or services have been provided
Seller’s price is fixed
Collectability is reasonably assured
identify the contract
Performance Obligation Satisfied
Determine the Transaction Price
REALIZABLE

11. COSO components of internal control
Control environment
Risk assessment
Control activities
adequate separation of duties
proper authorization of transactions & activities
adequate documents & records p. 345 (275)
physical control over assets & records
independent checks on performance
Information and communication
Monitoring p

12. Documents & Records Customer order p. 449 (383) Sales order p. 449
Shipping document (BoL) p. 449
Sales invoice p. 450
Sales journal p. 450
Remittance advice p Prelisting of cash receipts p.451
Accounts receivable trial balance p. 451
Cash receipts journal p. 452

13. Jane
what is the objective of AU-C section 315?

14. AU-C 315 Assessing RoMM & Understanding the Entity & Its Internal Control
.03 The objective of the auditor is to identify and assess the risks of material misstatement, whether due to fraud or error, at the financial statement and relevant assertion levels through understanding the entity and its environment, including the entity's internal control, thereby providing a basis for designing and implementing responses to the assessed risks of material misstatement.

15. Michelle
What steps must we document to demonstrate a minimal understanding of the accounting system ?

16. AU 315.A84 the accounting system
Procedures and records designed to
Initiate, authorize, record, process, and report entity transactions
Maintain accountability for the assets, liabilities & equity
Transfer information to the general ledger
Capture information other than transactions that is relevant to the financial statements. e.g. depreciation and amortization of assets, changes in the recoverability of receivables.
Ensure information that is required to be disclosed is accumulated, recorded, processed, summarized, and appropriately reported in the financial statements.
transactions
adjusting journal entries
disclosures

17. Page 338 (268) (Design of Internal Control)
Risks related to all relevant assertions
Evaluating Significant classes of transactions
Identify how each significant class of transactions
Initiated
Authorized
Recorded
Processed through the accounting system
Reported in the financial statements and disclosures
In order to identify points in the transactions where material misstatements could occur

18. Assessing Control Risk significant classes of Transactions
For each Significant Class of Transaction we must document our understanding of the Accounting Process from Initiation ---- into Financial Statements (probably with a flowchart)
and assess Control Risk for each of the
5 management assertions

19. page 388

20. Table 6-3
Page 159 (167)

21. Kirissa
What is the objective of AU-C section 500?

22. 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.

23. Assessing Control Risk significant classes of Transactions
For each Significant Class of Transaction
for mgmt assertions that we assess CR < MAX
we must identify specific Control Procedures

24. preliminary Control Risk assessment significant classes of Transactions
preliminary Control Risk assessment p. 373 (305) & 466 (400)
occur
complete
accurate
class
cutoff
Credit sales
med
Low
Med
Cash receipts
Payroll
Max
Cash Disburse
Purchasing

25. whenever we assess Control Risk less than Max
Credit Sales Transactions p. 373 (305)
Control
activity
Test of
Control Proc
Results
Of ToC
Occurrence med
Completeness Low
Accuracy Low
Classification Low
Cutoff med

26. Test of Controls Cyle. sales & collection Class of transactions
Test of Controls Cyle sales & collection Class of transactions credit sales
Table 2 on page 457 (391)

27. VOUCH p
see p
Control Risk Matrix

28. Cycle sales & collection Class of transactions credit sales
Substantive Tests of Transactions
Cycle sales & collection Class of transactions credit sales
Table 2 on page 457 (391)

29. vouch

30. Cole
Describe Vouching
Describe Tracing
p. 393
Direction of Tests

31. Test of Controls Cycle sales & collection Class of transactions cash receipts
Figure 5 on page 466 (400)

32. preliminary Control Risk assessment significant classes of Transactions
preliminary Control Risk assessment p. 373 (305) & 466 (400)
occur
complete
accurate
class
cutoff
Credit sales
med
Low
Med
Cash receipts
Payroll
Max
Cash Disburse
Purchasing

33. whenever we assess Control Risk less than Max
Cash Receipts Transactions p. 466 (400)
Control
activity
Test of
Control Proc
Results
Of ToC
Occurrence Low
Completeness med
Accuracy Low
Classification Low
Cutoff Low

34. Page 465 (399)
see
CR Matrix
p. 466 (400)

35. Substantive Tests of Transactions Cycle
Substantive Tests of Transactions Cycle sales & collection Class of transactions cash receipts
Table 3 on page 465 (399)

37. bank reconciliation
p. 743 (467)

38. page 750 (474) proof of cash

39. page 750 (474) proof of cash

40. Cash Receipts =
beginning Accounts Receivable
+ Sales
- ending Accounts Receivable
Sales =
end Acc Rec
+ Cash Receipt
– begin Acc Rec

41. John
How do we reduce detection risk ?

42. Dorian
what is the audit risk model ?

43. Audit Risk Model

44. Danny
What is the level of detection risk have we achieved (not planned detection risk) at the start of every audit ?

45. Table 6-3
Page 159 (167)

47. cut-off as of 12/31/2017

48. Haley
credit sales
In the Sales Journal Are you going to audit the last 25 entries prior to 12/31/17 or
the first 25 entries after 1/1/18

50. Hailee
will you
Vouch or Trace ?

51. Max
what does the evidence indicate if you Vouch the last 25 entries in the Sales Journal, prior to 12/31/17
to Shipping Documents dated on or prior to 12/31/17?

52. Genna
what does the evidence indicate if you Vouch the last 25 entries in the Sales Journal, prior to 12/31/17,
to Shipping Documents which are dated on or after 1/1/18?

53. shipping documents sales (and receivables) cut-off
at the loading dock

54. shipping documents
goods shipped in
2017
2018

56. Navid
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 in January of 2018

57. Stephanie
will you
Vouch or Trace ?

58. Mikey what would the evidence indicate if you trace
the last 25 shipments on Dec. 31, 2017
into the 2017 Sales Journal?

59. Julia L what would the evidence indicate if you traced
the first 25 shipments on Jan. 1, 2018
into the 2018 Sales Jnl ?

60. shipping documents
goods shipped in
2017
2018

62. Jenna what would the evidence indicate if you traced
the first 25 shipments on Jan. 1, 2018
into the 2017 Sales Journal?

64. the client refuses to adjust their
Sammie
what opinion do we issue
while performing substantive tests you find material misstatements in the financial statements
the client refuses to adjust their
financial statements

65. Sofia what opinion do we issue
while performing substantive tests we find material misstatements in the financial statements
the client agrees to make the necessary adjustments prior to issuing the financial statements

66. Malcolm
what does it imply about the effectiveness of their internal controls
while performing substantive tests you find material misstatements in the financial statements

67. Cash cut off

68. Mitchell 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

69. Kyle
cash receipts - will you
Vouch or Trace ?

70. Nik
cash receipts
with which financial statement assertion are you most concerned if we are auditing cash receipts?

72. Mark
cash receipts
you are Vouching the last 25 entries in the cash receipts journal prior to 12/31/17?
describe an example of evidence or a situation that supports the recorded balance

73. Austin
cash receipts
you are Vouching the last 25 entries in the cash receipts journal prior to 12/31/17 ?
describe an example of evidence or situation that indicates Cash Receipts are overstated

74. Laura 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

75. Hannah cash disbursements
with which financial statement assertion are you most concerned if you are auditing cash disbursements ?

77. Courtney
You are auditing the first 25 entries in the CD Jnl dated 1/1/2018 ?
describe an example of evidence or situation that would indicate cash disbursements are correct

78. Julia B
You are auditing the first 25 entries in the CD Jnl dated 1/1/2018 ?
describe an example of evidence that would indicate cash disbursements are understated

80. jj
what are two forms of
receivables confirmations ?

81. forms of receivables confirmations ?
positive (also blank form) p
negative p