1、Completing the Tests in the Sales and Collection Cycle: Accounts Receivable,Chapter 12,Learning Objective 1,Describe the methodology for designing tests of details of balances using the audit risk model.,Accounts Receivable Balance-Related Audit Objectives,Detail tie-in,Completeness,Classification,E
2、xistence,Accuracy,Cutoff,Realizable value,Rights and obligations,Presentation and disclosure,Methodology for Designing Tests of Balances Accounts Receivable,Identify client business risks affecting accounts receivable.,Set tolerable misstatement and assess inherent risk for accounts receivable.,Asse
3、ss control risk for sales and collection cycle.,Methodology for Designing Tests of Balances Accounts Receivable,Design and perform tests of controls and substantive tests of transactions for sales and collection cycle.,Design and perform analytical procedures for accounts receivable balance.,Methodo
4、logy for Designing Tests of Balances Accounts Receivable,Design tests of details of accounts receivable balance to satisfy balance-related audit objectives.,Audit procedures,Sample size,Items to select,Timing,Relationship Between Sales and Accounts Receivable,Relationship Between Sales and Accounts
5、Receivable,Existence,Completeness,Accuracy,Classification,Timing,Presentation and disclosure,Detail tie-in,Existence,Completeness,Accuracy,Classification,Cutoff,Realizable value,Rights,Posting/Summary,Accounts Receivable Balance-Related Audit Objectives,Translation-Related Audit Objectives Cash rece
6、ipts,Learning Objective 2,Design and perform analytical procedures for accounts in the sales and collection cycle.,Analytical Procedures for the Sales and Collection Cycle,Gross margin percentage with previous years,Sales by month over time,Sales returns and allowances as a percentage of gross sales
7、 with previous years,Compare,by product line,Analytical Procedures for the Sales and Collection Cycle,Individual customer balances over a stated amount,Bad debt expense as a percentage of gross sales,Days that accounts receivable are outstanding,with previous years,Compare,Analytical Procedures for
8、the Sales and Collection Cycle,Aging category as a percentage of receivables,Allowance for uncollectible accounts as a percentage of accounts receivable,Charge-off of uncollectible accounts as a percentage of total accounts receivable,with previous years,Compare,Selected Comparative Information,Perc
9、ent Percent2002 Change 2001 Change 2000(000) 02-01 (000) 00-01 (000) Sales 144.3 9.3 132.0 6.5 124.0 Gross margin 39.8 9.3 36.4 7.1 34.0 Accounts receivable 20.2 7.4 18.8 13.9 16.5 Bad debt expense 3.3 (2.9) 3.4 9.7 3.1 Total assets 61.4 (7.0) 66.0 8.0 61.1 Net earnings 5.7 21.3 4.7 38.2 3.4 Number
10、of accounts receivable 258 16.7 221 5.7 209,Analytical Procedures Sales and Collection Cycle,2002 2001 2000 Gross margin/net sales 27.8% 27.7% 27.5% Sales R&A/gross sales .9% .9% .8% Bad debt expense/net sales 2.3% 2.6% 2.4% Allowance for uncollectibleaccounts/accounts receivable 6.1% 8.2% 8.4% Numb
11、er of days receivablesoutstanding 51.5 52.3 51.2 Net accounts receivable/current assets 37.2% 38.6% 36.0%,Design and Perform Tests of Details of A/R Balance (Phase III),Planned detection risk for each objective is an auditors decision.,Combining the factors that determine planned detection risk is c
12、omplex.,Analytical Procedures for Gross Margin,Gross Margin Percent2002 2001Client Industry Client Industry Hardwood 36.3 32.4 36.4 32.5 Softwood 23.9 22.0 20.3 22.1 Plywood 40.3 50.1 44.2 54.3,Learning Objective 3,Design and perform tests of details of balances for accounts receivable for each bala
13、nce- related audit objective.,Designing Tests of Detail of Balances,Aged trial balance,Recorded accounts receivable exist,Existing accounts receivable are included,Accounts receivable are accurate,Accounts receivable are properly classified,Designing Tests of Detail of Balances,Cutoff for accounts r
14、eceivable is correct,Accounts receivable is stated at realizable value,The client has rights to accounts receivable,Accounts receivable presentation and disclosures are proper,Learning Objective 4,Obtain and evaluate accounts receivable confirmations.,AICPA Requirements,1. Accounts receivable are im
15、material.,2. The auditor considers confirmationsineffective evidence because responserates will likely be inadequate or unreliable.,3. The combined level of inherent risk andcontrol risk is low and other substantiveevidence can be accumulated to providesufficient evidence.,Type of Confirmation,Posit
16、ive confirmation,Blank confirmation form,Invoice confirmation,Negative confirmation,Timing,The most reliable evidence from confirmations is obtained when they are sent as close to the balance sheet date as possible, as opposed to confirming the accounts several months before year-end.,Sample Size,To
17、lerable misstatement,Inherent risk,Control risk,Achieved detection risk from other substantive tests,Type of confirmation,Selection of Items for Testing,When selecting a sample of accounts receivable for confirmation, the auditor should be careful to avoid being influenced by the client.,Selection o
18、f Items for Testing,If a client tries to discourage the auditor from sending confirmation to certain customers, the auditor should consider the possibility that the client is attempting to conceal fictitious or known misstatements of accounts receivable.,Subsequent Cash Receipts,Evidence of the rece
19、ipt of cash subsequent to the confirmation date includes examining remittance advices, entries in the cash receipts records, or perhaps even subsequent credits in the accounts receivable master files.,Duplicate Sales Invoices,These are useful in verifying the actual issuance of a sales invoice and t
20、he actual date of the billing.,Shipping Documents,These are important in establishing whether the shipment was actually made and as a test of cutoff.,Correspondence With the Client,Usually, the auditor does not need to review correspondence as a part of alternative procedures, but correspondence can
21、 be used to disclose disputed and questionable receivables not uncovered by other means.,Analysis of Difference,Payment has already been made,Goods have not been received,The goods have been returned,Clerical errors and disputed accounts,Drawing Conclusions,Reevaluate internal control.,Evaluate the
22、qualitative nature of misstatements.,Determine whether sufficient evidence was obtained.,Learning Objective 5,Design audit procedures for the audit of accounts receivable, using an evidence planning worksheet as a guide.,Source of Each Row in the Evidence Planning Worksheet,Tolerable misstatement,Ac
23、ceptable audit risk,Inherent risk,Control risk,Substantive tests of transactions results,Planned detection risk and planned audit evidence,Developing Tests of Details Audit Program,The development of audit program procedures for tests of details in the sales and collection cycle is based on the results of the analytical procedures, tests of controls, and substantive tests of transactions.,End of Chapter 12,
