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completing test on sales and collection cycles: account receivable
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16 - 1©2006 Prentice Hall Business Publishing, ©2006 Prentice Hall Business Publishing, Auditing 11/e,Auditing 11/e, Arens/Beasley/Elder Arens/Beasley/Elder
Completing the Tests in the Sales and Collection Cycle:
Accounts Receivable
ATIKAH GALUH WILANDRA
1210534013
16 - 2©2006 Prentice Hall Business Publishing, ©2006 Prentice Hall Business Publishing, Auditing 11/e,Auditing 11/e, Arens/Beasley/Elder Arens/Beasley/Elder
Learning Objectives 1. Describe the methodology for designing tests of
details of balances using the audit risk model.2. Design and perform analytical procedures for
accounts in the sales and collection cycle.3. Design and perform tests of details of balances
for accounts receivable for each balance- related audit objective.
4. Obtain and evaluate accounts receivable confirmations.
5. Design audit procedures for the audit of accounts receivable, using an evidence planning worksheet as a guide.
16 - 3©2006 Prentice Hall Business Publishing, ©2006 Prentice Hall Business Publishing, Auditing 11/e,Auditing 11/e, Arens/Beasley/Elder Arens/Beasley/Elder
Accounts Receivable Balance-Related Audit Objectives
Detail tie-inDetail tie-in
RealizableRealizablevaluevalue
ClassificationClassificationAccuracyAccuracy
ExistenceExistence
RightsRights
CompletenessCompleteness
Cutoff Cutoff
16 - 4©2006 Prentice Hall Business Publishing, ©2006 Prentice Hall Business Publishing, Auditing 11/e,Auditing 11/e, Arens/Beasley/Elder Arens/Beasley/Elder
Methodology for Designing Testsof Details of Balances for A/R
Phase I
Set tolerable misstatement and assess inherentrisk for accounts receivable.
Assess control risk for sales and collection cycle.
Identify client business risks affecting accountsreceivable.
16 - 5©2006 Prentice Hall Business Publishing, ©2006 Prentice Hall Business Publishing, Auditing 11/e,Auditing 11/e, Arens/Beasley/Elder Arens/Beasley/Elder
Methodology for Designing Testsof Details of Balances for A/R
Phase II
Design and perform tests of controls andsubstantive tests of transactions for thesales and collection cycle.
16 - 6©2006 Prentice Hall Business Publishing, ©2006 Prentice Hall Business Publishing, Auditing 11/e,Auditing 11/e, Arens/Beasley/Elder Arens/Beasley/Elder
Methodology for Designing Testsof Details of Balances for A/R
Phase III
Design and perform analytical procedures foraccounts receivable balance.
16 - 7©2006 Prentice Hall Business Publishing, ©2006 Prentice Hall Business Publishing, Auditing 11/e,Auditing 11/e, Arens/Beasley/Elder Arens/Beasley/Elder
16 - 8©2006 Prentice Hall Business Publishing, ©2006 Prentice Hall Business Publishing, Auditing 11/e,Auditing 11/e, Arens/Beasley/Elder Arens/Beasley/Elder
Methodology for Designing Testsof Details of Balances for A/R
.Design tests of details of accounts receivablebalance to satisfy balance-related audit objectives.
TimingTimingItems toItems toselectselect
SampleSamplesizesize
AuditAuditproceduresprocedures
16 - 9©2006 Prentice Hall Business Publishing, ©2006 Prentice Hall Business Publishing, Auditing 11/e,Auditing 11/e, Arens/Beasley/Elder Arens/Beasley/Elder
Designing Tests of Details of Balances Aged Trial BalanceAged Trial Balance Recorded Accounts Receivable ExistRecorded Accounts Receivable Exist Existing Accounts Receivable Are IncludedExisting Accounts Receivable Are Included Cutoff for Accounts Receivable Is CorrectCutoff for Accounts Receivable Is Correct Accounts Receivable Is Stated at Realizable Accounts Receivable Is Stated at Realizable
ValueValue The Client Has Rights to Accounts The Client Has Rights to Accounts
ReceivableReceivable
16 - 10©2006 Prentice Hall Business Publishing, ©2006 Prentice Hall Business Publishing, Auditing 11/e,Auditing 11/e, Arens/Beasley/Elder Arens/Beasley/Elder
Confirmation of Accounts ReceivableTypes of Confirmation: Positive confirmation
Blank confirmation formInvoice confirmation
Negative confirmation
16 - 11©2006 Prentice Hall Business Publishing, ©2006 Prentice Hall Business Publishing, Auditing 11/e,Auditing 11/e, Arens/Beasley/Elder Arens/Beasley/Elder
Analysis of Differences
Payment has already been madePayment has already been made
Goods have not been receivedGoods have not been received
The goods have been returnedThe goods have been returned
Clerical errors and disputed accountsClerical errors and disputed accounts
16 - 12©2006 Prentice Hall Business Publishing, ©2006 Prentice Hall Business Publishing, Auditing 11/e,Auditing 11/e, Arens/Beasley/Elder Arens/Beasley/Elder
Drawing Conclusions
Reevaluate internal control.
Evaluate the qualitative nature ofmisstatements.
Determine whether sufficient evidencewas obtained.
16 - 13©2006 Prentice Hall Business Publishing, ©2006 Prentice Hall Business Publishing, Auditing 11/e,Auditing 11/e, Arens/Beasley/Elder Arens/Beasley/Elder
Source of Each Row in the Evidence Planning Worksheet
Tolerable misstatementTolerable misstatement Acceptable audit riskAcceptable audit risk Inherent riskInherent risk Control riskControl risk Substantive tests of transactions resultsSubstantive tests of transactions results Analytical proceduresAnalytical procedures Planned detection risk and planned audit Planned detection risk and planned audit evidenceevidence