Chapter 14 Audit of the Sales and Collection Cycle

1. Chapter 14 Audit of the Sales and Collection Cycle

2. Qian what are the primary transactions in the sales and collection cycle ?

3. Sales (cash sales and credit sales) • Cash receipts • Sales returns and allowances • Write-off of uncollectible accounts • Estimate bad debt expense

4. Sales & Collection Transaction cycle “credit sales” accounts receivable x.xx sales x.xx “cash receipts” cash x.xx accounts recx.xx

5. auditing account balances

6. auditing transaction cycles

7. Cash Receipts = beginning Accounts Receivable + Sales - ending Accounts Receivable

8. Kaleigh the SEC requires four criteria be satisfied in order to recognize revenue what are those four criteria ?

9. 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

10. COSO components of internal control Control environment Risk assessment Control activities adequate separation of duties proper authorization of transactions & activities p. 166adequate documents & records page 243-7 physical control over assets & records independent checks on performance Information and communication Monitoring

11. Documents & Records Customer order p. 244 Sales order p. 244 Shipping document p. 244 Sales invoice p. 245 Sales journal p. 245 Accounts receivable trial balance p. 246 Remittance advice p. 246 Prelisting of cash receipts p. 246 Cash receipts journal p. 247

12. Adam V what is the objective of AU-C section 315?

13. AU-C 315 Assessing RoMM & Understanding the Entity & Its Internal Control .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.

14. Sara What steps must we document to demonstrate a minimal understanding of the accounting system ?

15. page 160/169 The classes of transactions that are significant Procedures by which those transactions are: Initiated & authorized, what accounting records exist, Processed through the accounting system into the GL, and reported in the financial statements. How the info system captures other events that are significant to the financial statements Reporting process used to prepare the financial statements, including significant estimates and disclosures.

16. 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)

18. 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

19. Page 59

20. Lauren What is the objective of AU-C section 500?

21. 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.

22. 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

23. preliminary Control Risk assessmentsignificant classes of Transactions preliminary Control Risk assessment pages 176 & 260

24. whenever we assess Control Risk less than Max Credit Sales Transactions p. 176

25. whenever we assess Control Risk less than Max Cash Receipts Transactions p. 260

26. Test of Controls Cyle sales & collection Class of transactionscredit sales Table 2 on page 252

27. Page 252 see p. 176 Control Risk Matrix

28. Substantive Tests of TransactionsCycle sales & collectionClass of transactions credit sales Table 2 on page 252

29. vouch

30. Chelsea Describe Vouching Describe Tracing

31. Test of Controls Cycle sales & collectionClass of transactions cash receipts Table 3 on page 261

32. whenever we assess Control Risk less than Max Cash Receipts Transactions p. 260

33. Page 261 see CR Matrix p. 260

34. Substantive Tests of TransactionsCycle sales & collectionClass of transactions cash receipts Table 3 on page 261

36. bank reconciliation page 322

37. page 329 proof of cash

38. page 329 proof of cash

39. Jon How do we reduce detection risk ?

40. Rene What is the achieved detection risk (not planned detection risk) at the start of every audit ?

41. Austin white what is the audit risk model ?

42. Audit Risk Model

43. Page 59

45. cut-off as of 12/31/2013

46. Jill credit sales In the Sales Journal ---- Are you going to audit the last 25 entries prior to 12/31/13 or the first 25 entries after 1/1/14

48. Sabrina will you Vouch or Trace ?

49. Mike what does the evidence indicate if you Vouch the last 25 entries in the Sales Journal, prior to 12/31/13 to Shipping Documents dated prior to 12/31/13?

50. Justin what does the evidence indicate if you Vouch the last 25 entries in the Sales Journal, prior to 12/31/13, to Shipping Documents which are dated after 1/1/14?