Bus 426 - Chapter 15

4 Pages

Business Administration
Course Code
BUS 426
Michael Favere- Marchesi

This preview shows page 1. Sign up to view the full 4 pages of the document.
Chapter 15 -Accounts Receivable Cycle Designing Tests of Details of Balances for A/R Methodology for Designing Tests of Details of Balances  Evidence Planning Spreadsheet: A working paper used to help the auditor decide whether planned audit evidence for tests of details of balances should be low, medium or high for each balance- related audit objective (Page 229)  Eight Balance-Related Audit Objectives: o Existence: Recorded accounts receivables exist o Rights and Obligations: Client has rights to receivables o Completeness: Existing receivables are included o Accuracy: Receivables are accurate o Valuation: Receivables are stated at realizable value o Classification: Receivables are properly classified o Detail Tie-In: Receivables in trial balance agree with master file and also with general ledger o Cut-Off: Cut-off times for receivables are correct  Seven Disclosure-Related Audit Objectives: o Occurrence: Receivable balances are for transactions actually occurred o Rights and Obligations: Receivables includes only amounts that are collectable by the company o Completeness: Receivables are fully included o Accuracy: Accounts payable balance is materially correct o Valuation: Receivables are shown at appropriate amounts that represent what will be collected o Classification: Correctly grouped as current vs long-term o Understandability: Information is clearly shown, indicating the nature and risks of the receivables  Methodology for Designing Tests of Details of Balances Steps o 1. Set materiality, assess audit risk and inherent risk and conduct planning analytical review o 2. Assess control risk for the sales and collection cycle  Occurrence in sales affect the existence of the receivable  Occurrence in cash receipts affect the completeness of the receivable  Completeness in cash receipts affect the existence of the receivable o 3. Identify at-risk assertions  Identify assertions where substantive testing may be insufficient  Targets testing that are based upon risk of materiality misstatement Chapter 15 Accounts Receivable Cycle  Increase testing where there are significant risks of misstatement o 4. Design and Perform Tests of Controls o 5. Design and Perform Analytical Procedures o 6. Design Tests of Details to Satisfy Balance-Related objectives Importance of Analytical Procedures 1. Design and Perform Analytical Procedures Analytical Procedure Possible Misstatement Compare gross margin with Over or understatement of sales previous years’ (by product line) and receivables Compare sales by month (by Over or understatement of sales product line) over time and receivables Examine relationship between Over or understatement of sales sales and cost of sales and receivables (regression) Compare sales returns and Over or understatement of sales allowances as a percentage of returns and allowances and gross sales with previous years’ receivables Compare individual customer Misstatements in receivables and balances over a stated amount related income statement with previous years accounts Compare bad-debt expense as a Uncollectible accounts receivable percentage of gross sales with that has not been provided for previous years Compare aging categories as a Over or understatement of percentage of accounts allowance for uncollectible receivables with previous years accounts and bad-debt expense Compare number of days that Over or understatement of accounts receivables is allowance for uncollectible outstanding with previous years accounts and bad-debt expense Compare allowance for Over or understatement of uncollectible accounts as a allowance for uncollectible percentage of accounts accounts receivabl
More Less
Unlock Document

Only page 1 are available for preview. Some parts have been intentionally blurred.

Unlock Document
You're Reading a Preview

Unlock to view full version

Unlock Document

Log In


Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.