Presentation is loading. Please wait.

Presentation is loading. Please wait.

©2012 Pearson Education, Auditing 14/e, Arens/Elder/Beasley 5 - 5 Completing the Tests in the Sales and Collection Cycle: Accounts Receivable Chapter 16.

Published byTyrone Carroll Modified over 8 years ago

Similar presentations

Presentation on theme: "©2012 Pearson Education, Auditing 14/e, Arens/Elder/Beasley 5 - 5 Completing the Tests in the Sales and Collection Cycle: Accounts Receivable Chapter 16."— Presentation transcript:

1 ©2012 Pearson Education, Auditing 14/e, Arens/Elder/Beasley 5 - 5 Completing the Tests in the Sales and Collection Cycle: Accounts Receivable Chapter 16

2 ©2012 Pearson Education, Auditing 14/e, Arens/Elder/Beasley 16 - 2 Learning Objective 1 Describe the methodology for designing tests of details of balances using the audit risk model.

3 ©2012 Pearson Education, Auditing 14/e, Arens/Elder/Beasley 16 - 3 Accounts Receivable Balance- related Audit Objectives Cutoff Detail tie-in Existence Rights Accuracy Classification A/R Audit Objectives Realizable value Completeness

4 ©2012 Pearson Education, Auditing 14/e, Arens/Elder/Beasley 16 - 4 Methodology for Designing Tests of Details of Balances for A/R Phase I Set tolerable misstatement and assess inherent risk for accounts receivable Identify client business risks affecting Accounts Receivable Assess control risk for sales and collection cycle

5 ©2012 Pearson Education, Auditing 14/e, Arens/Elder/Beasley 16 - 5 Methodology for Designing Tests of Details of Balances for A/R Phase II Design and perform tests of controls and substantive tests of transactions for the sales and collection cycle

6 ©2012 Pearson Education, Auditing 14/e, Arens/Elder/Beasley 16 - 6 Methodology for Designing Tests of Details of Balances for A/R Phase III Sample size Design and perform analytical procedures for accounts receivable Design tests of details of accounts receivable balance to satisfy balance-related objectives Audit procedures Items to select Timing

7 ©2012 Pearson Education, Auditing 14/e, Arens/Elder/Beasley 16 - 7 Relationship Between Sales and Accounts Receivable ACCOUNTS RECEIVABLE BALANCE-RELATED AUDIT OBJECTIVES Translation-related audit objectives Sales Occurrence Completeness Accuracy Posting and summarization Classification Timing Detail tie-inExistenceCompletenessAccuracyClassificationCutoff Realizable value Rights × × × × × ×

8 ©2012 Pearson Education, Auditing 14/e, Arens/Elder/Beasley 16 - 8 Relationship Between Sales and Accounts Receivable ACCOUNTS RECEIVABLE BALANCE-RELATED AUDIT OBJECTIVES Translation-related audit objectives Cash receipts Occurrence Completeness Accuracy Posting and summarization Classification Timing Detail tie-inExistenceCompletenessAccuracyClassificationCutoff Realizable value Rights × × × × × ×

9 ©2012 Pearson Education, Auditing 14/e, Arens/Elder/Beasley 16 - 9 Learning Objective 2 Design and perform analytical procedures for accounts in the sales and collection cycle.

10 ©2012 Pearson Education, Auditing 14/e, Arens/Elder/Beasley 16 - 10 Analytical Procedures for the Sales and Collection Cycle  Gross margin percentage with previous years  Sales by month over time  Sales returns and allowances as a percentage of gross sales with previous years Compare by product line:

11 ©2012 Pearson Education, Auditing 14/e, Arens/Elder/Beasley 16 - 11 Analytical Procedures for the Sales and Collection Cycle  Individual customer balances over a stated amount  Bad debt expense as a percentage of gross sales  Days that accounts receivable are outstanding Compare with previous years:

12 ©2012 Pearson Education, Auditing 14/e, Arens/Elder/Beasley 16 - 12 Analytical Procedures for the Sales and Collection Cycle  Aging category as a percentage of receivables  Allowance for uncollectible accounts as a percentage of accounts receivable  Write-off of uncollectible accounts as a percentage of total accounts receivable Compare with previous years:

13 ©2012 Pearson Education, Auditing 14/e, Arens/Elder/Beasley 16 - 13 Selected Comparative Information Sales Gross margin Accounts receivable Bad debt expense Total current assets Total assets Net earnings Number of accounts receivable Number of accts. rec. with balances over $100,000 144,328 39,845 20,197 3,323 51,027 61,367 5,681 258 37 9.0 9.6 7.3 (2.1) 14.0 (7.0) 21.9 16.7 15.6 132,421 36,350 18,827 3,394 44,779 66,021 4,659 221 32 7.0 14.1 7.3 6.6 8.0 39.0 5.7 6.7 123,737 33,961 16,505 3,162 41,989 61,147 3,351 209 30 12/31/11 ($000) Percent change 2010-11 12/31/10 ($000) Percent change 2009- 2010 12/31/09 ($000)

14 ©2012 Pearson Education, Auditing 14/e, Arens/Elder/Beasley 16 - 14 Analytical Procedures: Sales and Collection Cycle

15 ©2012 Pearson Education, Auditing 14/e, Arens/Elder/Beasley 16 - 15 Design and Perform Tests of Details of A/R Balance (Phase III)  Planned detection risk for each objective is an auditor decision  Combining the factors that determine planned detection risk is complex

16 ©2012 Pearson Education, Auditing 14/e, Arens/Elder/Beasley 16 - 16 Learning Objective 3 Design and perform tests of details of balances for accounts receivable.

17 ©2012 Pearson Education, Auditing 14/e, Arens/Elder/Beasley 16 - 17 Designing Tests of Detail of Balances Accounts receivable are correctly added and agree with the Master File and the General Ledger (aged trial balance).  Recorded accounts receivable exist  Existing accounts receivable are included

18 ©2012 Pearson Education, Auditing 14/e, Arens/Elder/Beasley 16 - 18 Designing Tests of Detail of Balances  Accounts receivable are accurate  Accounts receivable are properly classified  Cutoff for accounts receivable is correct

19 ©2012 Pearson Education, Auditing 14/e, Arens/Elder/Beasley 16 - 19 Designing Tests of Detail of Balances  Accounts receivable is stated at realizable value  The client has rights to accounts receivable  Accounts receivable presentation and disclosure

20 ©2012 Pearson Education, Auditing 14/e, Arens/Elder/Beasley 16 - 20 Learning Objective 4 Obtain and evaluate accounts receivable confirmations.

21 ©2012 Pearson Education, Auditing 14/e, Arens/Elder/Beasley 16 - 21 Confirmation Requirements Auditing Standards United States International Required Except when: Low inherent & control risks Expected low response rate Confirmations not required Alternate Procedures

22 ©2012 Pearson Education, Auditing 14/e, Arens/Elder/Beasley 16 - 22 Type of Confirmation  Positive confirmation  Blank confirmation form  Invoice confirmation  Negative confirmation

23 ©2012 Pearson Education, Auditing 14/e, Arens/Elder/Beasley 16 - 23 Positive Confirmation

24 ©2012 Pearson Education, Auditing 14/e, Arens/Elder/Beasley 16 - 24 Negative Confirmation Requirements  Risk of material misstatement is low  Large number of small account balances  Expected low exception rate  Expect adequate consideration from recipients

25 ©2012 Pearson Education, Auditing 14/e, Arens/Elder/Beasley 16 - 25 Negative Confirmation

26 ©2012 Pearson Education, Auditing 14/e, Arens/Elder/Beasley 16 - 26 Timing The most reliable evidence from confirmations is obtained when they are sent as close to the balance sheet date as possible.

27 ©2012 Pearson Education, Auditing 14/e, Arens/Elder/Beasley 16 - 27 Sampling Decisions Achieved Detection risk from other tests Tolerable misstatement Inherent Risk Type of Confirmation Sample Size factors Control Risk

28 ©2012 Pearson Education, Auditing 14/e, Arens/Elder/Beasley 16 - 28 Verifying Addresses and Maintaining Control The auditor should perform procedures to verify the addresses or email addresses used for confirmation. Auditors must be responsible for mailing the confirmations and maintaining control of the confirmations until they are returned from the customer.

29 ©2012 Pearson Education, Auditing 14/e, Arens/Elder/Beasley 16 - 29 Follow-up on Nonresponses When positive confirmations are used, AU 330 requires follow-up procedures for confirmations not returned by the customer. Alternate Procedures Duplicate sales invoices Subsequent cash receipts Shipping documents

30 ©2012 Pearson Education, Auditing 14/e, Arens/Elder/Beasley 16 - 30 Analysis of Differences  Payment-in-transit  Shipment-in-transit  The goods have been returned  Errors and disputes

31 ©2012 Pearson Education, Auditing 14/e, Arens/Elder/Beasley 16 - 31 Drawing Conclusions  Reevaluate internal control  Evaluate the qualitative nature of misstatements  Determine whether sufficient evidence was obtained

32 ©2012 Pearson Education, Auditing 14/e, Arens/Elder/Beasley 16 - 32 Learning Objective 5 Design audit procedures for the audit of accounts receivable, using an evidence planning worksheet as a guide.

33 ©2012 Pearson Education, Auditing 14/e, Arens/Elder/Beasley 16 - 33 Evidence Planning Worksheet

34 ©2012 Pearson Education, Auditing 14/e, Arens/Elder/Beasley 5 - 5 End of Chapter 16

Download ppt "©2012 Pearson Education, Auditing 14/e, Arens/Elder/Beasley 5 - 5 Completing the Tests in the Sales and Collection Cycle: Accounts Receivable Chapter 16."

Similar presentations

Now is the time to test the details of balances.

Now is the time to test the details of balances.
©2010 Prentice Hall Business Publishing, Auditing 13/e, Arens//Elder/Beasley 16 - 1 Completing the Tests in the Sales and Collection Cycle: Accounts Receivable.

©2010 Prentice Hall Business Publishing, Auditing 13/e, Arens//Elder/Beasley Completing the Tests in the Sales and Collection Cycle: Accounts Receivable.
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.
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.
©2003 Prentice Hall Business Publishing, Auditing and Assurance Services 9/e, Arens/Elder/Beasley 22 - 1 Audit of Cash Balances Chapter 22.

©2003 Prentice Hall Business Publishing, Auditing and Assurance Services 9/e, Arens/Elder/Beasley Audit of Cash Balances Chapter 22.
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 23 - 1 Audit of Cash Balances Chapter 23.

©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder Audit of Cash Balances Chapter 23.
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.
©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.
©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 5 - 5 Audit of the Inventory and Warehousing Cycle Chapter 21.

©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley Audit of the Inventory and Warehousing Cycle Chapter 21.
14 - 1 Copyright  2003 Pearson Education Canada Inc. CHAPTER 14 Completing the Tests in the Sales and Collection Cycle: Accounts Receivable.

Copyright  2003 Pearson Education Canada Inc. CHAPTER 14 Completing the Tests in the Sales and Collection Cycle: Accounts Receivable.
17 - 1 ©2003 Prentice Hall Business Publishing, Essentials of Auditing 1/e, Arens/Elder/Beasley Audit of Cash Balances Chapter 17.

©2003 Prentice Hall Business Publishing, Essentials of Auditing 1/e, Arens/Elder/Beasley Audit of Cash Balances Chapter 17.
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.
©2010 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 6 - 1 Audit Responsibilities and Objectives Chapter 6.

©2010 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder Audit Responsibilities and Objectives Chapter 6.
20 - 1 ©2006 Prentice Hall Business Publishing, Auditing 11/e, Arens/Beasley/Elder Completing the Tests in the Acquisition and Payment Cycle: Verification.

©2006 Prentice Hall Business Publishing, Auditing 11/e, Arens/Beasley/Elder Completing the Tests in the Acquisition and Payment Cycle: Verification.
©2010 Prentice Hall Business Publishing, Auditing 13/e, Arens//Elder/Beasley 19 - 1 Completing the Tests in the Acquisition and Payment Cycle: Verification.

©2010 Prentice Hall Business Publishing, Auditing 13/e, Arens//Elder/Beasley Completing the Tests in the Acquisition and Payment Cycle: Verification.
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.

Similar presentations

Ads by Google