Aud15 PPT 16 Ge

Chapter
Chapter16
16
Completing
Completingthe the
Tests
Testsininthe
theSales
Sales
and
andCollection
Collection
Cycle:
Cycle:
Accounts
AccountsReceivable
Receivable
Copyright © 2014 Pearson Education

Describe the methodology for designing
tests of details of balances using the audit
risk model.
Design and perform analytical procedures
for accounts in the sales and collection
cycle.
Design and perform tests of details of
balances for accounts receivable.
16-2
Obtain and evaluate accounts receivable
confirmations.
Design audit procedures for the audit of
accounts receivable, using the evidence
planning worksheet as a guide.
16-3
1
Describe the methodology for designing tests
of details of balances using the audit
risk model.
16-4
Detail tie-in
Existence Rights
A/R
Completeness Audit Realizable value
Objectives
Accuracy Cutoff
Classification
16-5
Phase I
Identify client Set Assess

business performance control risk
risks materiality for sales
affecting and assess and
Accounts inherent risk collection
Receivable for accounts cycle
receivable
16-6
Phase II
Design and perform tests of controls and

substantive tests of transactions
for the sales and collection cycle
16-7
Phase III
Design tests of details

Design and perform of accounts receivable
analytical procedures balance to satisfy
for accounts receivable balance-related
objectives
Audit Sample Items to Timing

procedures size select
16-8
ACCOUNTS RECEIVABLE
BALANCE-RELATED
Completeness
Classification
AUDIT OBJECTIVES
Detail tie-in
Realizable
Existence
Accuracy
Translation-related
Rights
Cutoff
value
audit objectives
Sales
Occurrence
Completeness
Accuracy
Posting and
summarization
Classification
Timing
16-9
ACCOUNTS RECEIVABLE
BALANCE-RELATED
Completeness
Classification
AUDIT OBJECTIVES
Detail tie-in
Realizable
Existence
Accuracy
Translation-related
Rights
Cutoff
value
audit objectives
Cash receipts
Occurrence
Completeness
Accuracy
Posting and
summarization
Classification
Timing
16-10
2
Design and perform analytical procedures for
accounts in the sales and collection cycle.
16-11
Compare by product line:
 Gross margin percentage with
previous years
 Sales by month over time
 Sales returns and allowances
as a percentage of gross sales
with previous years
16-12
Compare with previous years:
 Individual customer balances over
a stated amount
 Bad debt expense as a percentage
of gross sales
 Days that accounts receivable
are outstanding
16-13
Compare with previous years:
 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
16-14
Percent
Percent change
12/31/13 change 12/31/12 2011- 12/31/11
($000) 2012-13 ($000) 2012 ($000)
Sales 144,328 9.0 132,421 7.0 123,737
Gross margin 39,845 9.6 36,350 7.0 33,961
Accounts receivable 20,197 7.3 18,827 14.1 16,505
Bad debt expense 3,323 (2.1) 3,394 7.3 3,162
Total current assets 51,027 14.0 44,779 6.6 41,989
Total assets 61,367 (7.0) 66,021 8.0 61,147
Net earnings 5,681 21.9 4,659 39.0 3,351
Number of accounts
receivable 258 16.7 221 5.7 209
Number of accts. rec. with
balances over $100,000 37 15.6 32 6.7 30
16-15
16-16
 Planned detection risk for each
objective is an auditor decision
 Combining the factors that determine

planned detection risk is complex
16-17
3
Design and perform tests of details of balances
for accounts receivable.
16-18
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
16-19
Accounts receivable are accurate
Accounts receivable are properly classified
Cutoff for accounts receivable is correct
16-20
 Accounts receivable is stated at
realizable value
 The client has rights to accounts receivable
 Accounts receivable presentation and

disclosure
16-21
4
Obtain and evaluate accounts receivable
confirmations.
16-22
Auditing Standards
United States International
Required Except Confirmations not

when: required
Expected low
response rate Alternate
Procedures
Low inherent &
control risks
16-23
 Positive confirmation
Blank confirmation form
Invoice confirmation
Negative confirmation
16-24
16-25
 Risk of material misstatement is low
 Large number of small account balances
 Expected low exception rate
 Expect adequate consideration from

recipients
16-26
16-27
The most reliable evidence from confirmations
is obtained when they are sent as close to the
balance sheet date as possible.
16-28
Performance
materiality
Inherent Risk Control Risk
Sample
Size factors
Achieved
Detection
Type of
risk from
Confirmation
other tests
16-29
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.
16-30
When positive confirmations are used,
Auditing standards require follow-up
Procedures for confirmations not
returned by the customer.
Alternate Procedures
Subsequent Duplicate Shipping

cash receipts sales documents
16-31
invoices
 Payment-in-transit
Shipment-in-transit
The goods have been returned
Errors and disputes
16-32
Reevaluate internal control
Evaluate the qualitative nature of

misstatements
Determine whether sufficient evidence

was obtained
16-33
5
Design audit procedures for the audit of
accounts receivable, using an evidence
planning worksheet as a guide.
16-34
16-35
16-36
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means, electronic, mechanical, photocopying, recording, or
otherwise, without the prior written permission of the publisher.
Printed in the United States of America.
16-37

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Chapter

Copyright © 2014 Pearson Education

Identify client Set Assess

Design and perform tests of controls and

Design tests of details

Audit Sample Items to Timing

 Combining the factors that determine

 Recorded accounts receivable exist

 Existing accounts receivable are included

Accounts receivable are properly classified

Cutoff for accounts receivable is correct

 The client has rights to accounts receivable

 Accounts receivable presentation and

United States International

Required Except Confirmations not

Blank confirmation form

 Large number of small account balances

 Expected low exception rate

 Expect adequate consideration from

Inherent Risk Control Risk

Auditors must be responsible for mailing

Subsequent Duplicate Shipping

The goods have been returned

Errors and disputes

Evaluate the qualitative nature of

Determine whether sufficient evidence

All rights reserved. No part of this publication may be reproduced,

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