11 Evidence - The Sales-Receivables-Cash Cycle

Question 1

What should an auditor do when customers fail to answer a second request for past due balance confirmation?

Answer 1

When customers fail to answer a second request for a positive confirmation, the auditor should then apply alternative procedures.

Question 2

When customers fail to answer a second request for positive confirmation year-end balances that are past due, what could this indicate?

Answer 2

The accounts may be in dispute, uncollectible or fictitious

Question 3

What alternative procedures should an auditor apply when second requests for positive confirmation receive no response and the customers’ balance is past due?

Answer 3

• examine subsequent cash receipts
• examine shipping documents
• examine other client documentation of existence

The auditor might verify the underlying transactions by examining supporting documents such as contracts, sales invoices, customer orders, shipping advices, and subsequent collections, and seek evidence of the existence, address, and financial standing of the customer.

Question 4

What does it mean if the majority of the returned positive confirmation requests indicate smaller balances at year end than those in the client’s records?

Answer 4

The sales journal was held open after year end.

Question 4

What does it mean if the majority of the returned positive confirmation requests indicate smaller balances at year end than those in the client’s records?

Answer 4

The sales journal was held open after year end.