Audit Process For The Sales And Collection Cycle Essential Terms - Ch. 16

Front 1

Accounts receivable balance-related audit objectives

Back 1

The nine specific audit objectives used by the auditor to decide the appropriate audit evidence for accounts receivable.

Front 2

What are the nine specific balance-related audit objectives?

Back 2

Detail Tie-in, Amounts in the trial balance exist, Existing amounts are included in the trial balance, amounts in trial balance are accurate, properly classified, cut-off correct, stated at realizable value, client has rights to that asset, all balances are properly presented and disclosed.

Front 3

What is an aged trial balance?

Back 3

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.

Front 4

What are alternative procedures?

Back 4

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 and is collectible. Like looking at related shipping documents and /or cash receipts from customer.

Front 5

What is a blank confirmation form?

Back 5

a letter, addressed to the debtor, requesting the receipient to fill in the amount of the accounts receivable balance; it is considered a positive confirmation.

Front 6

What are cutoff misstatements?

Back 6

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?

Front 7

What is an invoice confirmation?

Back 7

A type of positive confirmation in which an individual invoice is confirmed, rather than the customer's entire accounts receivable balance.

Front 8

What is negative confirmation?

Back 8

A letter, addressed to the debtor, usually in front of the current statement of their account, requesting a response only if the receipient disagrees with the amount of the stated account balance.

Front 9

What is a positive confirmation?

Back 9

A letter, addressed to the debtor, requesting that the receipient indicate directly on the letter whether the stated account balance is correct or incorrect and, if incorrect, by what amount.

Front 10

What is the realizable value of accounts receivable?

Back 10

The amount of the outstanding balances in a/r that will ultimately be collected.

Front 11

What is a timing difference?

Back 11

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.

Front 12

When is it acceptable to use negative confirmations?

Back 12

A/R is made up of small accounts, combined assessed control risk and inherent risk is low, no reason to believe that the recipients of the confirmations are unlikely to give them consideration. ALL OF THESE NEED TO BE TRUE OTHERWISE USE POSITIVE CONFIRMATIONS.

Front 13

Under what circumstances can you issue an unqualified report without confirming A/R balances?

Back 13

A/R is immaterial, auditor considers confirmation ineffective evidence because response rates will likely be inadequate or unreliable, or the combined level of inherent risk and control risk is low and other substantive evidence can be accumulated to provide sufficient evidence. ONLY ONE OF THESE CONDITIONS NEEDS TO BE TRUE.

Front 14

What is the methodology for designing tests of details of balances for A/R?

Back 14

(1) Identify client business risks affecting A/R. (2) Set tolerable misstatement and assess inherent risk for A/R. (3) Assess control risk for sales and collection cycle. (4)Design and perform tests of controls and substantive tests of transactions. (5) Design and perform analytical procedures for A/R balance. (6) Design tests of details of A/R balance to satisfy balance-related audit objectives. Step 6 includes following audit procedures, sample size, items to select, timing of tests.