A1 Revenue Cycle Flashcards
Accounts Receivable Masterfile
AR master file is most likely to be affected by sales & cash receipts transaction.
Tracing from Accounting Records
Tracing from accounting records to supporting documents tests for overstatement (From Sales Invoices to Shipping Documents).
Completeness Test
To test for completeness an auditor should start with the source (supporting documents) and then trace forward to recording in the accounting records (From Shipping Documents to Sales Invoices/Journals)
Look at the source then look for the shipping document in a sales invoice (records), then look for that in the sales journal (records)
Valuation & Allocation Test
Inspection, Footing & Cross Footing, Recalculation, & Reconciliations.
These focus on whether asset, liability, revenue, & expense components have been included in the FS at the appropriate amounts & adjustments are recorded.
Understandability of Presentation & Classification Test
Inspection, Inquiry with Mgmt.
This focuses on whether financial info is appropriately presented and described and disclosures are clearly expressed.
Existence Test
Confirmations, Observations, Inspections, Examinations, Vouching
Focuses on whether assets, liabilities, & equity exist at a given date. Going to the sales journal (records) and working your way back to the shipping document or customer order (records to source).
Rights & Obligations Test
Confirmations
Focus is on whether assets are the rights of the entity and liabilities are the obligation of the entity at a given date.
Cuttoff Test
Compares invoices from just before & after year end, for instance looking at shipment dates and the dates the sale was recorded.
Positive Confirmations
Used when individual account balances are large, if there are doubts over reliability of of internal evidence, or when IR & CR are high.
Negative Confirmations
Appropriate for large numbers of small balances where the risk of material misstatement is low.
External Confirmations
Obtaining direct written responses from 3rd parties to verify the accuracy of information that affects the FS. Confirmations are primarily a test of existence or overstatements
Blank Forms
Less efficient. May result in lower response rates because a greater effort is required for responses.
Tracing from Invoices
Tracing from invoices to shipping documents (Aka bill of lading which is a document between a seller & shipper for shipment receipt) would provide evidence that sales billed to customers were actually shipped.
Start with Shipping documents and trace to invoices to ensure shipments were properly billed.
Sales Internal Controls
There’s a system of internal control when selling on credit (ARC) Authority, Record Keeping & Custody
Transaction Cycles
Provide auditing procedure & need to determine assertion
Provide Assertion & Need to determine most likely audit procedure
Provide objective & need to determine assertion and audit procedure
Exam will ask these sort of questions so, approach it like “The auditor wants to ensure all sales are recorded, this is a completeness assertion, Look for procedure that involve tracing
