Chapter 16 Flashcards
The eight specific audit objectives used by the auditor to decide the appropriate audit evidence for accounts receivable
Accounts Receivable Balance Related Audit Objectives
A listing of the balances in the accounts receivable master file at the balance sheet date broken down according to the amount of time passed between the date of sale and the balance sheet date
Aged Trial Balance
The follow-up of a positive confirmation not returned by the debtor with the use of documentation evidence to determine whether the recorded receivable exists
Alternative Procedures
A letter, addressed to the debtor, requesting the recipient to fill in the amount of the accounts receivable balance; it is considered a positive confirmation
Blank Confirmation Form
Misstatements that take place as a result of current period transactions being recorded in a subsequent period, or subsequent period transactions being recorded in the current period
Cutoff Misstatement
A type of positive confirmation in which an individual invoice is confirmed, rather than the customer’s entire accounts receivable balance
Invoice Confirmation
A letter, addressed to the debtor, requesting a response only if the recipient disagrees with the amount of the stated account balance
Negative Confirmation
A letter, addressed to the debtor, requesting that the recipient indicate directly on the letter whether the stated account balance is correct or incorrect and, if incorrect, by what amount
Positive Confirmation
The amount of the outstanding balances in accounts receivable that will ultimately be collected
Realizable Value of Accounts Receivable
A reported difference in a confirmation from a debtor that is determined to be a timing difference between the client’s and debtor’s records and therefore not a misstatement
Timing Difference
What are the eight Accounts Receivable Balance Related Audit Objectives
1) Accounts receivable in the aged trial balance agree with related master file and the total agrees with the general ledger (Detail tie-in)
2) Recorded accounts receivable exist (existence)
3) Existing accounts receivable are included (Completeness)
4) Accounts receivable are accurate (accuracy)
5) Accounts receivable are correctly classified (classification)
6) Cutoff for accounts receivable is correct (Cutoff)
7) Accounts receivable is stated at realizable value (Realizable Value)
8) The client has rights to accounts receivable (Rights)
The auditor decides the preliminary judgment about materiality for the entire financial statement and then allocates the preliminary judgment amount to each significant balance sheet account
Setting performance materiality
Auditors are concerned with three aspects of internal control
1) Controls that prevent of detect embezzlement
2) Controls over cutoff
3) Controls related to the allowance for uncollectible accounts
For sales, the occurrence transaction-related audit objective affects what?
the existence balance-related audit objective
For cash receipts, the occurrence transaction-related audit objective affects what?
Completeness balance-related audit objective
Realizable value and rights accounts receivable balance related audit objectives are not affect by what?
assessed control risk for classes of transactions. These audit objectives must be tested through separate controls
The most important test of details of accounts receivable
Confirmation
In order to complete a test of details of balances for accounts receivable, an auditor must
1) Have completed an evidence planning worksheet
2) Have decided planned detection risk for tests of details for each balance-related audit objective
Most tests of accounts receivable and the allowance for uncollectible accounts are based on the BLANK
Aged Trial Balance
Cutoff misstatements can occur for:
Sales, sales returns and allowances, and cash receipts
Auditors require a threefold approach to determine the reasonableness of cutoff
1) Decide the appropriate criteria for cutoff
2) Evaluate whether the client has established adequate procedures to ensure a reasonable cutoff
3) Test whether the cutoff was correct
Most merchandising and manufacturing clients record a sale based on BLANK
Shipment of goods
Accounting standards require that sales returns and allowances be BLANK if the amounts are material
Matched with related sales
Sales returns and allowances are recorded in BLANK
The accounting period in which they occur
