1 chapter 16 completing the tests in the sales and collection cycle accounts receivable
TRANSCRIPT
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?
Courtney
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 500Audit Evidence
7
Melanie
How does detection risk get reduced ?
8
Matt F
what is the audit risk model ?
9
Audit Risk Model
Tests eSubstantiv extensive low PDR if
Tests eSubstantiv limited high PDR if )(
assessment CR theoffunction a is DR of level required the
rearrange
CRc
CRfPDR
RoMMAAR
PDRPDRRoMMAARPDRCRIRAAR
10
Holly
pretend GAAS requires AAR ≤ .05
Controls are ineffective, we assess RoMM as MAX
Which audit approach are we going to take ?
11
Megan
pretend GAAS requires AAR ≤ .05
Controls are ineffective, we assess RoMM as MAX (1.00)
We are taking the Primarily Substantive Approach
What is the Planned Detection Risk ?
12
Donne
pretend GAAS requires AAR ≤ .05
Controls are effective, not great but
Somewhat effective and
we assess RoMM as 0.25
What is the Planned Detection Risk ?
13
JP
pretend GAAS requires AAR ≤ .05
Controls are effective, not great but
somewhat effective and
we assess RoMM as 0.25
Which audit approach will we take?
14
Dominic
pretend GAAS requires AAR ≤ .05
Controls are effective, we assess RoMM as 0.03
Which audit approach will we take ?
15
Craig
pretend GAAS requires AAR ≤ .05
Controls are effective, we assess RoMM as 0.03
We will take the Reduced Level of Control Risk Approach
What is the Planned Detection Risk ?
16
Brianna
Which assertions relate to Account Balances?
17
Page 59
18
Colleen
Describe Vouching
Describe Tracing
19
Stephanie
If we are auditing assets
are we most concerned with
overstatement or understatement
20
Colby
If we are auditing LIABILITIES
are we most concerned with
overstatement or understatement
21
Eastwood
If we are auditing Sales or Revenues
are we most concerned with
overstatement or understatement
22
Bill
If we are auditing EXPENSES
are we most concerned with
overstatement or understatement
23
Katie
If we are auditing Accounts Receivable
are we most concerned with
Existence or Completeness
24
Kyle C
If we are auditing Cash Receipts
are we most concerned with
Occurrence or Completeness
25
Kayla
If we are auditing CASH DISBURSEMENTS
are we most concerned with
Occurrence or Completeness
26
Adam
what are the three types of substantive tests?
27
Analytical Procedures - Substantive
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aged trial balance
page 285
29
over over over90 days 60 days 30 days current balance
Ace 2,529 2,016 11,876 16,421Applied 15,939 27,901 43,840Barry 1,089 743 3,176 8,993 14,001Brandt 501 7,310 30,948 24,441 63,200Cermetrics 3,814 8,617 12,431Columbia 4,321 4,321Drake 740 2,954 3,693EMC 1,261 1,048 16,195 18,504
W&M 1,905 2,167 28,390 32,461Yancey 815 2,861 9,874 13,562 27,112
10,157 56,706 160,537 392,136 619,537
30
Kelly
with which financial statement assertion might the aged trial balance be helpful ?
Figure 3 page 285
31
32
AU Section 330The Confirmation Process
(Supersedes section 331.03.08)Source: SAS No. 67.Effective for audits of fiscal periods ending afterJune 15, 1992, unless otherwise indicated.
Introduction and Applicability
01 This section provides guidance about the confirmationprocess in audits performed in accordance withgenerally accepted auditing standards. This section
ù Defines the confirmation process (see paragraph.04).
ù Discusses the relationship of confirmationprocedures to the auditor's assessment of auditrisk (see paragraphs .05 through .10).
ù Describes certain factors that affect the reliabilityof confirmations (see paragraphs .16 through .27).
33
Connor
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
Norman
what are two forms of
receivables confirmations ?
35
forms of receivables confirmations ?
positive p 291
blank form
negative p 291
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37
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
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Valuation & allocation
Page 298
41
Valuation & allocation
42
Cash cut off 12-31-14
43
Chris M
Cash Receipts JournalAre 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
44
Chris S
cash receipts - will you
Vouch or Trace ?
45
Manuel
cash receipts
other than cutoff
with which financial statement assertion are we most concerned if we are auditing cash receipts as of Dec. 31st?
46
cash250
300450 200350 275550 100200 450
12/311/1 100 300
375 190190 320
47
Colton
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
48
Calvin
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
49
Amanda
Cash Disbursements Journalwill 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 2015
50
Eric
cash disbursements
with which financial statement assertion (other than cutoff) are we concerned if we are auditing cash disbursements ?
51
cash250
300450 200350 275550 100200 450
12/31/20131/1/2014 300
190100 320375190
52
Jennifer
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
53
Brian
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
54
Accounts Receivable cut-off 12-31-14
55
Anna
Accounts receivableAre you going to audit the last 25 entries prior to 12/31/14
or
the first 25 entries after 1/1/15
56
Cameron
will you
Vouch or Trace ?
57
PJ
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
58
Matt N
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
59
shipping documentsaccounts receivables (& sales) cut-off
at the loading
dock
60
shipping documents
2014 2015goods shipped in
61
Melanie
do you want to audit the last 25 orders that were actually shipped prior to 12/31/14
orthe first 25 orders that were shipped on January 1, 2015
62
Matt F
will you
Vouch or Trace ?
63
Holly
what would the evidence indicate if you traced
the first 25 shipments of 2015
into the 2015 Accounts Receivable balance
64
Megan
what would the evidence indicate if you traced
the first 25 shipments of 2015 into the 2014 Accounts Receivable balance
65
Donne
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
66
JP
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
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