Revenue and Collection Cycle Flashcards
What audit procedure tests: accounts receivable represent all amounts owed to the client company at the balance sheet date.
Perform sales, inventory, and COGS cutoff tests
What audit procedure tests: The client company has a legal right to all accounts receivable at the balance sheet date.
Review loan agreements for indications of whether accounts receivable have been factored or pledged.
What audit procedure tests: Accounts receivable are stated at net realizable value.
Review the aged trial balance for significant past due accounts to determine if they are realizable.
What audit procedure tests: Accounts receivable are properly described and presented in the financial statements.
Review the accounts receivable trial balance for amounts due from officers and employees.
Confirm a sample of receivables by direct communication with the debtors tests which management assertion?
existence of assets
Review confirmations of liabilities to determine if receivables have been sold tests which management assertion?
rights to assets
Select a sample of sales invoices in the subsequent period, and examine the related shipping documents for date of shipment to ascertain whether some of those shipments at the end of the period were inadvertently not recorded tests which management assertion?
completeness of assets
Vouch sales and cash receipt transactions occurring near period end tests which management assertion?
cutoff of transactions
Compare the amount of credits given to customers in the subsequent period to the amount estimated by management tests which management assertion?
valuation of assets
Provide a list of related parties to all members of the audit team to assist in identification of the transactions tests which management assertion?
F/S presentation and disclosure
Management may have fraudulently overstated revenue by making __________ journal entries.
inappropriate
Receivables that have been sold should not remain as a(n) _____ on the company’s books.
asset
Overstatement may occur when sales for the next period are recorded in the _______ period.
current
To test collectibility of receivables, auditors may consider credit ratings for debtors of _____receivables.
large
Testing the reconciliation for accounts receivable to the general ledger ensures that the software is programmed _________.
correctly
Many instances of misstatement are based on the inappropriate recognition of ______.
revenue
One way to avoid misstatement of revenue is to ensure the client has proper ________.
cutoff policies
Revenues are deemed to be earned when the company has ______ what it must do to fulfill its obligation.
accomplished
Side _________ can substantially alter the terms of a sale.
agreements
________ needs to be assured in order to recognize revenue.
Collectibility
to test whether a client’s internal controls were effective in preventing the failure to post sales invoices to the customers’ accounts ledger, the auditor should select a sample of transactions from the population represented by the
sales invoice file
tracing a sample of daily cash deposits from the client’s bank statement to the cash receipts journal is a test of controls primarily providing evidence related to which management transaction assertion?
completeness
selecting a sample of recorded cash receipts from the cash receipts journal and comparing the date of receipt to the recording date is a test of controls primarily providing evidence related to which management transaction assertion?
completeness
tracing a sample of cash receipts to postings in the correct customers’ subsidiary receivable account is a test of controls primarily providing evidence related to which management transaction assertion?
classification (correct customer account)
