CH 16 Flashcards

1
Q

What are accounts receivable balance related audit objectives?

A

1) Existence
2) Completeness
3) Accuracy
4) Classification
5) Cutoff
6) Realizable value
7) rights
8) detail tie-in

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2
Q

What is the first phase of designing tests of details of balances for accounts receivable?

A

1) identify client business risks affecting accounts receivable
2) set performance materiality and assess inherent risk for accounts receivable
3) Assess control risk for sales and collection cycle

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3
Q

What is the second phase of designing tests of details of balances for accounts receivable?

A

1) design and perform tests of controls and substantive tests of transactions for the sales and collection cycle.

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4
Q

What is the third phase of designing tests of details of balances for accounts receivable?

A

1) The task of combining phase 1 and 2 into other factors: Audit procedures, sample size, items to select, and timing.

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5
Q

What do analytical procedures for the sales and collection cycle compare?

A

it compares with product line by

1) Gross margin percentage with previous years
2) Sales by month over time
3) Sales returns and allowances as a percentage of gross sales with previous years.

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6
Q

What other analytical procedures for sales and collection cycle’s timing (or previous years)?

A

1) Individual customer balances over stated amount
2) Bad debt expense as a percentage of gross sales
3) Days that account receivable are outstanding
4) Aging category as a percentage of receivables
5) Allowance for uncollectible accounts a percentage of account receivable
6) Write-off of uncollectible accounts as percentage of total accounts receivable

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7
Q

What are the concerns of design and performing test of details to A/R balance?

A

1) PDR is based on auditor decision

2) Combining the factors that determine planned detection is complex

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8
Q

What are designing tests of detail of balances?

A

1) A/R is correctly added and agree with the master file and general ledger ( aged trial balance)
2) Recorded accounts receivable exist
3) Existing accounts receivable are included

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9
Q

What are guidelines of designing test of detail of balances?

A

1) Accounts receivable are accurate
2) Account receivable are properly classified
3) Cutoff for accounts receivable is correct

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10
Q

What are three rules for designing tests of detail of balances?

A

1) Accounts receivable is stated at realizable value
2) The client has rights to accounts receivable
3) Accounts receivable presentation and disclosure

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11
Q

What are confirmation requirements in united states?

A

1) Expected low response rate
2) Low inherent and controls risks
3) when 1 and 2 requirements occur, alternate procedures: appropriate confirmation(s).

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12
Q

What are the three types of positive confirmations?

A

1) Positive confirmation (direct confirmation)
2) Blank confirmation ( fill out balance)
3) Invoice confirmation ( invoice is used)

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13
Q

What is negative confirmation?

A

1) debtor disagrees with the stated amount.

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14
Q

What are negative confirmation’s requirements?

A

1) Risk of material misstatement is low
2) Large number of small account balance
3) Expected low exception rate
4) Expect adequate consideration from recipients

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15
Q

What is the most reliable evidence from obtained confirmations when they are sent as close to the balance sheet date as possible?

A

Timing

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16
Q

What are sample size factors?

A

1) inherent risk
2) performance materiality
3) types of confirmation
4) control
5) Achieved detection risk from other tests

17
Q

What are auditor’s responsibilities for performing confirmations

A

1) the auditor must
a) verify address or email
b) and other confirmations until they are returned from the customer.

18
Q

When positive confirmations are used, auditing standards require follow up procedures for confirmations not returned by the customer. What is this called?

A

Alternate procedures

1) subsequent cash receipts
2) duplicate sales invoices
3) shipping document

19
Q

What make up analysis of differences or confirmation requests returned by the customer?

A

1) payment in transit
2) shipment in transit
3) The goods have been returned
4) Errors and disputes

20
Q

What are four types of drawing conclusions?

A

1) Reevaluate internal control
2) Generalize from sample to general population
3) Evaluate the qualitative nature of misstatements
4) Determine whether sufficient evidence was obtained