CH 16 Flashcards
What are accounts receivable balance related audit objectives?
1) Existence
2) Completeness
3) Accuracy
4) Classification
5) Cutoff
6) Realizable value
7) rights
8) detail tie-in
What is the first phase of designing tests of details of balances for accounts receivable?
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
What is the second phase of designing tests of details of balances for accounts receivable?
1) design and perform tests of controls and substantive tests of transactions for the sales and collection cycle.
What is the third phase of designing tests of details of balances for accounts receivable?
1) The task of combining phase 1 and 2 into other factors: Audit procedures, sample size, items to select, and timing.
What do analytical procedures for the sales and collection cycle compare?
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.
What other analytical procedures for sales and collection cycle’s timing (or previous years)?
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
What are the concerns of design and performing test of details to A/R balance?
1) PDR is based on auditor decision
2) Combining the factors that determine planned detection is complex
What are designing tests of detail of balances?
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
What are guidelines of designing test of detail of balances?
1) Accounts receivable are accurate
2) Account receivable are properly classified
3) Cutoff for accounts receivable is correct
What are three rules for designing tests of detail of balances?
1) Accounts receivable is stated at realizable value
2) The client has rights to accounts receivable
3) Accounts receivable presentation and disclosure
What are confirmation requirements in united states?
1) Expected low response rate
2) Low inherent and controls risks
3) when 1 and 2 requirements occur, alternate procedures: appropriate confirmation(s).
What are the three types of positive confirmations?
1) Positive confirmation (direct confirmation)
2) Blank confirmation ( fill out balance)
3) Invoice confirmation ( invoice is used)
What is negative confirmation?
1) debtor disagrees with the stated amount.
What are negative confirmation’s requirements?
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
What is the most reliable evidence from obtained confirmations when they are sent as close to the balance sheet date as possible?
Timing
