Presentation is loading. Please wait.

Presentation is loading. Please wait.

Audit of the Sales and Collection Cycle: Tests of Controls and Substantive Tests of Transactions Chapter 14.

Published by Modified over 9 years ago

Similar presentations

Presentation on theme: "Audit of the Sales and Collection Cycle: Tests of Controls and Substantive Tests of Transactions Chapter 14."— Presentation transcript:

1 Audit of the Sales and Collection Cycle: Tests of Controls and Substantive Tests of Transactions
Chapter 14

2 Overview of Accounts in the Sales and Collection Cycle
Cash sales Sales on account Accounts Receivable Cash receipts Sales returns and allowances Charge-off of uncollectible accounts Beginning balance Ending Cash in Bank Cash Discounts Taken Bad Debt Expense Sales Returns and Allowances

3 Accounts in the Sales and Collection Cycle
Accounts Receivable Cash receipts Sales returns and allowances Charge-off of uncollectible accounts Beginning balance Sales on account Ending Allowance for Uncollectible Accounts Estimate of bad debt expense Bad Debt Expense

4 Analysis of the Sales and Collection Cycle
Excellent format for analysis: Business Functions Accounts involved Documents and Records Think Accounting Information Systems

5 Sales Transaction Accounts Sales receivable Business functions
Processing customer orders Granting credit Shipping goods Billing customers and recording sales Documents and records Customer order Sales order Customer order or sales order Shipping document Sales invoice Sales transaction file Sales journal or listing Accounts receivable master file trial balance Monthly statements

6 Cash Receipts Transaction
Accounts Business functions Processing and recording cash receipts Documents and records Remittance advice Prelisting of cash receipts Cash receipts transaction file Cash receipts journal or listing Cash in bank (debits from cash receipts) Accounts receivable

7 Sales Returns and Allowances Transaction
Accounts Business functions Processing and recording sales returns and allowances Documents and records Credit memo Sales and returns and allowances journal Sales returns and allowances Accounts receivable

8 Charge-off of Uncollectible Accounts Transaction
Business functions Charging off uncollectible accounts receivable Documents and records Uncollectible account authorization form General journal Accounts receivable Allowance for uncollectible accounts

9 Bad Debt Expense Transaction
Accounts Business functions Providing for bad debts Documents and records General journal Bad debt expense Allowance for uncollectible accounts

10 Processing Customer Orders
A request for merchandise by a customer Sales Order: A document describing the goods ordered by a customer

11 Granting Credit Before goods are shipped, a properly
authorized person must approve credit to the customer for sales on account.

12 Shipping Goods This is the first point in the cycle
where company assets are given up.

13 Billing Customers and Recording Sales
Sales invoice Sales transaction file Sales journal or listing Accounts receivable master file Accounts receivable trial balance Monthly statement

14 Processing and Recording Cash Receipts
Remittance advice Prelisting of cash receipts Cash receipts transaction file Cash receipts journal or listing

15 Processing and Recording Sales Returns and Allowances
Credit memo Sales returns and allowances journal

16 Charging Off Uncollectible Accounts Receivable
Uncollectible account authorization form This is a document used internally to indicate authority to write an account receivable off as uncollectible.

17 Providing for Bad Debts
This provision represents a residual, resulting from management’s end-of-period adjustment of the allowance for uncollectible accounts.

18 Effect of E-Commerce on the Sales and Collection Cycle
The Internet and other developing technologies allow companies to develop new business models.

19 Effect of E-Commerce on the Sales and Collection Cycle
Business-to-business (B2B) Business-to-consumer (B2C) Management’s assertions for sales and collection activities remain the same.

20 Effect of E-Commerce on the Sales and Collection Cycle
Auditors should obtain an understanding of the design and operation of key internal controls over e-commerce revenues. Evidence for e-commerce activities is likely to be in electronic form.

21 Methodology for Designing Controls and Substantive Tests of Sales Transactions for Sales
Understand internal control – sales. Design tests of controls and substantive tests of transactions for sales to meet transaction -related audit objectives. Assess planned control risk – sales. Audit procedures Sample size Items to select Timing Determine extent of testing controls.

22 Understand Internal Control – Sales
Study the client’s flowcharts, prepare an internal control questionnaire, and perform walk-through tests of sales.

23 Assess Planned Control Risk – Sales
Four Steps: 1. Framework for assessing control risk 2. Identify key internal controls and deficiencies 3. Associate controls and deficiencies with the objectives 4. Assess control risk for each objective

24 Assess Planned Control Risk – Sales
Adequate separation of duties Proper authorization Adequate documents and records Prenumbered documents Monthly statements Internal verification procedures

25 Determine Extent of Testing Controls
Audits of public companies Audits of nonpublic companies

26 Transaction-Related Audit Objectives for Sales
Existence: Recorded sales are for shipments actually made. Completeness: Existing sales transactions are recorded. Accuracy: Recorded sales are for the amount shipped.

27 Transaction-Related Audit Objectives for Sales
Classification: Sales transactions are properly classified. Timing: Sales are recorded on the correct dates. Posting and summarization: Sales transactions are properly included in the accounts receivable master file.

28 Direction of Tests for Sales
Customer order Shipping document Duplicate sales invoice Sales journal General Accounts receivable master file = Completeness start Existence start

29 Summary of Methodology for Sales
Transaction-related audit objectives (Column 1) Key existing controls (Column 2) Tests of control (Column 3) Deficiencies (Column 4) Substantive tests of transactions (Column 5)

30 Sales Returns and Allowances
The transaction-related audit objectives and client’s methods of controlling misstatements are essentially the same for processing credit memos as those described for sales.

31 Sales Returns and Allowances
There are, however, two important differences. Materiality Emphasis on objectives

32 Tests of Controls and Substantive Tests of Transactions for Cash Receipts
Determine whether cash received was recorded. Prepare proof of cash receipts. Test to discover lapping of accounts receivable.

33 Audit Tests for Uncollectible Accounts
Existence of recorded write-offs is the most important transaction-related audit objective. What is a major concern in testing accounts charged off as uncollectible? – covering up a defalcation by charging off accounts receivable that have been collected

34 Additional Internal Controls Over Account Balances
Realizable value Charging off uncollectibles Credit approval Aged accounts receivable trial balance

35 Additional Internal Controls Over Account Balances
Rights and obligations Presentation and disclosure

36 Effect of Results of Controls and Substantive Tests of Transactions
The parts of the audit most affected by the tests for the sales and collection cycle are: Accounts receivable Cash Bad debt expense Allowance for doubtful accounts

37 Types of Audit Tests for the Sales and Collection Cycle
Accounts Receivable Cash in Bank transactions Cash receipts Ending balance TOC + STOT + AP + TDB = Sufficient competent evidence per GAAS Audited by TOC, STOT, and AP Audited by AP and TDB

Download ppt "Audit of the Sales and Collection Cycle: Tests of Controls and Substantive Tests of Transactions Chapter 14."

Similar presentations

Chapter 14 Audit of the Sales and Collection Cycle

Chapter 14 Audit of the Sales and Collection Cycle
CHAPTER 14 AUDITING THE REVENUE CYCLE Fall 2007

CHAPTER 14 AUDITING THE REVENUE CYCLE Fall 2007
Modern Auditing: Assurance Services and the Integrity of Financial Reporting, 8th Edition William C. Boynton California Polytechnic State University at.

Modern Auditing: Assurance Services and the Integrity of Financial Reporting, 8th Edition William C. Boynton California Polytechnic State University at.
Now is the time to test the details of balances.

Now is the time to test the details of balances.
Audit of the Sales and Collection Cycle

Audit of the Sales and Collection Cycle
BA 427 – Assurance and Attestation Services Lecture 4 Internal Controls: Sales and Receivables.

BA 427 – Assurance and Attestation Services Lecture 4 Internal Controls: Sales and Receivables.
16 When More Isn’t Better COMPLETING THE TESTS IN THE SALES AND COLLECTION CYCLE: ACCOUNTS RECEIVABLE COMPLETING THE TESTS IN THE SALES AND COLLECTION.

16 When More Isn’t Better COMPLETING THE TESTS IN THE SALES AND COLLECTION CYCLE: ACCOUNTS RECEIVABLE COMPLETING THE TESTS IN THE SALES AND COLLECTION.
Completing the Tests in the Sales and Collection Cycle: Accounts Receivable Chapter 16.

Completing the Tests in the Sales and Collection Cycle: Accounts Receivable Chapter 16.
©2003 Prentice Hall Business Publishing, Auditing and Assurance Services 9/e, Arens/Elder/Beasley 13 - 1 Audit of the Sales and Collection Cycle Chapter.

©2003 Prentice Hall Business Publishing, Auditing and Assurance Services 9/e, Arens/Elder/Beasley Audit of the Sales and Collection Cycle Chapter.
Sales & Cash Receipts Transactions By David N. Ricchiute

Sales & Cash Receipts Transactions By David N. Ricchiute
©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 5 - 5 Audit of the Acquisition and Payment Cycle: Tests of Controls, Substantive.

©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley Audit of the Acquisition and Payment Cycle: Tests of Controls, Substantive.
Chapter 7 Revenue and Collection Cycle “What at first was plunder assumed the softer name of revenue.” Thomas Paine McGraw-Hill/IrwinCopyright © 2008 by.

Chapter 7 Revenue and Collection Cycle “What at first was plunder assumed the softer name of revenue.” Thomas Paine McGraw-Hill/IrwinCopyright © 2008 by.
Audit of the Sales and Collection Cycle: Tests of Controls and Substantive Tests of Transactions Chapter 14.

Audit of the Sales and Collection Cycle: Tests of Controls and Substantive Tests of Transactions Chapter 14.
11 - 1 ©2003 Prentice Hall Business Publishing, Essentials of Auditing 1/e, Arens/Elder/Beasley Audit of the Sales and Collection Cycle Chapter 11.

©2003 Prentice Hall Business Publishing, Essentials of Auditing 1/e, Arens/Elder/Beasley Audit of the Sales and Collection Cycle Chapter 11.
14 - 1 ©2003 Prentice Hall Business Publishing, Essentials of Auditing 1/e, Arens/Elder/Beasley Audit of the Acquisition and Payment Cycle: Tests of Controls,

©2003 Prentice Hall Business Publishing, Essentials of Auditing 1/e, Arens/Elder/Beasley Audit of the Acquisition and Payment Cycle: Tests of Controls,
Auditing The Revenue Cycle Prepared by: Sartini, S.E., M.Sc., Akt.

Auditing The Revenue Cycle Prepared by: Sartini, S.E., M.Sc., Akt.
©2010 Prentice Hall Business Publishing, Auditing 13/e, Arens//Elder/Beasley 20 - 1 Audit of the Payroll and Personnel Cycle Chapter 20.

©2010 Prentice Hall Business Publishing, Auditing 13/e, Arens//Elder/Beasley Audit of the Payroll and Personnel Cycle Chapter 20.
©2010 Prentice Hall Business Publishing, Auditing 13/e, Arens/Elder/Beasley 18 - 1 Audit of the Acquisition and Payment Cycle: Tests of Controls, Substantive.

©2010 Prentice Hall Business Publishing, Auditing 13/e, Arens/Elder/Beasley Audit of the Acquisition and Payment Cycle: Tests of Controls, Substantive.
CHAPTER 11 SUBTANTIVE AUDIT TESTING: Revenue Cycle

CHAPTER 11 SUBTANTIVE AUDIT TESTING: Revenue Cycle
19 - 1 ©2006 Prentice Hall Business Publishing, Auditing 11/e, Arens/Beasley/Elder Audit of the Acquisition and Payment Cycle: Tests of Controls, Substantive.

©2006 Prentice Hall Business Publishing, Auditing 11/e, Arens/Beasley/Elder Audit of the Acquisition and Payment Cycle: Tests of Controls, Substantive.

Similar presentations

Ads by Google