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Chapter 14 Audit of the Sales and Collection Cycle. Allison. what are the primary transactions in the sales and collection cycle ?. Sales (cash sales and credit sales) Cash receipts Sales returns and allowances Write-off of uncollectible accounts Estimate bad debt expense.
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Chapter 14 Audit of the Sales and Collection Cycle
Allison what are the primary transactions in the sales and collection cycle ?
Sales (cash sales and credit sales) • Cash receipts • Sales returns and allowances • Write-off of uncollectible accounts • Estimate bad debt expense
Sales & Collection Transaction cycle “credit sales” accounts receivable x.xx sales x.xx “cash receipts” cash x.xx accounts recx.xx
Cash Receipts = beginning Accounts Receivable + Sales - ending Accounts Receivable
Ashley the SEC requires four criteria be satisfied in order to recognize revenue what are those four criteria ?
Revenue Recognition “SEC” • Persuasive evidence of an arrangement exists • Delivery has occurred or services have been provided • Seller’s price is fixed • Collectibility is reasonably assured
COSO components of internal control Control environment Risk assessment Control activities adequate separation of duties proper authorization of transactions & activities adequate documents & records page 337-341 physical control over assets & records independent checks on performance Information and communication Monitoring
Documents & Records Customer order p. 338 Sales order p. 338 Shipping document p. 338 Sales invoice p. 339 Sales journal p. 339 Accounts receivable trial balance p. 340 Remittance advice p. 340 Prelisting of cash receipts p. 340 Cash receipts journal p. 341
Barbara what is the objective of AU-C section 315?
AU-C 315 Understanding the Entity & Its Environment & Assessing RoMM .03 The objective of the auditor is to identify and assess the risks of material misstatement, whether due to fraud or error, at the financial statement and relevant assertion levels through understanding the entity and its environment, including the entity's internal control, thereby providing a basis for designing and implementing responses to the assessed risks of material misstatement.
Nikki sullivan What steps must we document to demonstrate a minimal understanding of the accounting system ?
Page 254/263 (what is a sufficient understanding?) For CREDIT SALES transactions Evaluate Risks related to all assertions for TRANSACTIONS Identify points in the transactions where material misstatements could occur How each significant class of transactions • Initiated • Authorized • Recorded – documents and accounting records • Processed through the accounting system • Financial reporting process, including disclosures
Assessing Control Risk significant classes of Transactions For each Significant Class of Transaction we must document our understanding of the Accounting Process from Initiation ---- into Financial Statements (probably with a flowchart)
Assessing Control Risk significant classes of Transactions For each Significant Class of Transaction we must document our understanding of the Accounting Process from Initiation ---- into Financial Statements (probably with a flowchart) and assess Control Risk for each of the 5 management assertions
Kyle What is the objective of AU-C section 500?
AU-C 500Audit Evidence .04 The objective of the auditor is to design and perform audit procedures that enable the auditor to obtain sufficient appropriate audit evidence to be able to draw reasonable conclusions on which to base the auditor's opinion.
Assessing Control Risk significant classes of Transactions For each Significant Class of Transaction for mgmt assertions that we assess CR < MAX we must identify specific Control Procedures
preliminary Control Risk assessmentsignificant classes of Transactions preliminary Control Risk assessment pages 271 & 354
whenever we assess Control Risk less than Max Credit Sales Transactions p. 271
whenever we assess Control Risk less than Max Cash Receipts Transactions p. 354
Test of Controls Cyle sales & collection Class of transactionscredit sales Table 2 on page 346
Page 346 see Control Risk Matrix p. 271
Substantive Tests of TransactionsCycle sales & collectionClass of transactions credit sales Table 2 on page 346
Michael D Describe Vouching Describe Tracing
Test of Controls Cycle sales & collectionClass of transactions cash receipts Table 3 on page 355
whenever we assess Control Risk less than Max Cash Receipts Transactions p. 354
Page 355 see CR Matrix p. 354
Substantive Tests of TransactionsCycle sales & collectionClass of transactions cash receipts Table 3 on page 355
bank reconciliation page 462
Jordan How do we reduce detection risk ?
Megan What is the achieved detection risk (not planned detection risk) at the start of every audit ?
Kristine what is the audit risk model ?
Katie credit sales In the Sales Journal ---- Are you going to audit the last 25 entries prior to 12/31/12 or the first 25 entries after 1/1/13
Brigid will you Vouch or Trace ?
Scott A what does the evidence indicate if you Vouch the last 25 entries in the Sales Journal, prior to 12/31/12 to Shipping Documents dated prior to 12/31/12?
Kelly what does the evidence indicate if you Vouch the last 25 entries in the Sales Journal, prior to 12/31/12, to Shipping Documents which are dated after 1/1/13?