audit of the sales and collection cycle - muhariefeffendi's ... plant assets & intangibles...
Post on 27-May-2018
219 Views
Preview:
TRANSCRIPT
Copyright © 2014 Pearson Education
Chapter 14
Audit of the Sales
and Collection
Cycle:
Tests of Control and
Substantive Tests of
Transactions
Copyright © 2014 Pearson Education 14-2
Identify the accounts and the classes of
transactions in the sales and collection
cycle.
Describe the business functions and the
related documents and records in the sales
and collection cycle.
Understand internal control, and design
and perform tests of controls and
substantive tests of transactions for sales.
Copyright © 2014 Pearson Education 14-3
Apply the methodology for controls over
sales transactions to controls over sales
returns and allowances.
Understand internal control, and design
and perform tests of controls and
substantive tests of transactions for cash
receipts.
Apply the methodology for controls over
the sales and collection cycle to write-offs
of uncollectible accounts receivable.
Copyright © 2014 Pearson Education
Identify the accounts and the classes of transactions in the sales and collection cycle.
14-4
1
Copyright © 2014 Pearson Education 14-5
Copyright © 2014 Pearson Education
Describe the business functions and the related documents and records in the sales and
collection cycle.
14-6
2
Copyright © 2014 Pearson Education 14-7
Accounts Business Functions Documents and Records
Sales
Accounts
receivable
Processing
customer orders
Granting credit
Shipping goods
Billing customers
and recording
sales
Customer order Sales order Customer order or sales order Shipping document Sales invoice Sales transaction file Sales journal or listing Accounts receivable master file Accounts receivable trial balance Monthly statements
Copyright © 2014 Pearson Education 14-8
Accounts Business Functions Documents and Records
Cash in bank
(debits from
cash receipts)
Accounts
receivable
Processing and
recording cash
receipts
Remittance advice
Prelisting of cash
receipts
Cash receipts
transaction file
Cash receipts journal
or listing
Copyright © 2014 Pearson Education 14-9
Accounts Business Functions Documents and Records
Sales returns
and
allowances
Accounts
receivable
Processing and
recording sales
returns and
allowances
Credit memo
Sales and returns and
allowances journal
Copyright © 2014 Pearson Education 14-10
Accounts Business Functions Documents and Records
Accounts
receivable
Allowance for
uncollectible
accounts
Writing off
uncollectible
accounts
receivable
Uncollectible account
authorization form
General journal
Copyright © 2014 Pearson Education
14-11
Accounts Business Functions Documents and Records
Bad debt
expense
Allowance for
uncollectible
accounts
Providing for bad
debts
General journal
Copyright © 2014 Pearson Education 14-12
Customer Order:
A request for merchandise by a customer
Sales Order:
A document describing the goods ordered
by a customer
Copyright © 2014 Pearson Education 14-13
Before goods are shipped, a properly
authorized person must approve credit
to the customer for sales on account
Copyright © 2014 Pearson Education 14-14
This is the first point in the cycle at which the company gives up assets.
One type of shipping document is a bill of lading.
Bills of lading are often transmitted once goods have been shipped
Copyright © 2014 Pearson Education 14-15
Sales transaction
file
Sales journal
Accounts receivable
file
Accounts receivable
trial balance
Copyright © 2014 Pearson Education 14-16
Prelisting of
Cash receipts
Cash receipts transaction
file
Copyright © 2014 Pearson Education 14-17
Credit memo
Sales returns and allowances journal
Copyright © 2014 Pearson Education 14-18
Uncollectible account authorization form
This is a document used internally to
indicate authority to write an account
receivable off as uncollectible
Copyright © 2014 Pearson Education 14-19
This provision represents a residual,
resulting from management’s
end-of-period adjustment of the
allowance for uncollectible accounts
Copyright © 2014 Pearson Education
Understand internal control, and design and perform tests of controls and substantive tests of
transactions for sales.
14-20
3
Copyright © 2014 Pearson Education 14-21
Understand internal control – sales
Assess planned control risk – sales
Determine extent of testing controls
Design tests of controls and
substantive tests of transactions
for sales to meet transaction-
related audit objectives
Audit procedures
Sample size
Items to select
Timing
Copyright © 2014 Pearson Education 14-22
Study the client’s flowcharts, prepare
an internal control questionnaire, and
perform walk-through tests of sales.
Copyright © 2014 Pearson Education 14-23
1. Framework for assessing control risk
2. Identify key internal controls and deficiencies
3. Associate controls and deficiencies with the
objectives
4. Assess control risk for each objective
Copyright © 2014 Pearson Education 14-24
Adequate separation of duties
Proper authorization
Adequate documents and records
Pre-numbered documents
Monthly statements
Internal verification procedures
Copyright © 2014 Pearson Education 14-25
Control
risk
Control
effectiveness
Copyright © 2014 Pearson Education 14-26
Copyright © 2014 Pearson Education 14-27
Occurrence:
Recorded sales are for shipments actually made.
Completeness:
Existing sales transactions are recorded.
Accuracy:
Recorded sales are for the
amount shipped.
Copyright © 2014 Pearson Education 14-28
Posting and summarization:
Sales transactions are correctly included
in the accounts receivable master file.
Classification:
Sales transactions are correctly classified.
Timing:
Sales are recorded on the
correct dates.
Copyright © 2014 Pearson Education 14-29
Improper
sales cutoff Sham sales
Improper
% of completion
Conditional sales
Round-tripping
loans as sales
Fraudulent
Techniques
Premature
revenue
recognition
Unauthorized
shipments
Bill and hold
Consignment
sales
Copyright © 2014 Pearson Education 14-30
Identify key transaction-related audit objectives
Determine key existing controls
Design tests of controls to verify effectiveness
Evaluate any control deficiencies
Determine extent of substantive tests
of transactions
Copyright © 2014 Pearson Education
Apply the methodology for controls over sales transactions to controls over sales returns and
allowances.
14-31
4
Copyright © 2014 Pearson Education 14-32
The transaction-related audit objectives and
client’s methods of controlling misstatements
are essentially the same for processing credit
memos as those described for sales.
Copyright © 2014 Pearson Education 14-33
There are, however, two important differences:
Materiality
Emphasis
on
objectives
Copyright © 2014 Pearson Education
Understand internal control, and design and perform tests of controls and substantive tests
of transactions for cash receipts.
14-34
5
Copyright © 2014 Pearson Education 14-35
Determine whether cash received was recorded
Prepare proof of cash receipts*
Test to discover lapping of accounts receivable*
Copyright © 2014 Pearson Education
Apply the methodology for controls over the sales and collection cycle to write-offs of
uncollectible accounts receivable.
14-36
6
Copyright © 2014 Pearson Education 14-37
Occurrence transaction-related audit objective
Proper authorization of the write-off of
uncollectible accounts
Verification of accounts written off
Copyright © 2014 Pearson Education 14-38
The parts of the audit most affected by the
tests for the sales and collection cycle are:
Accounts
receivable
Cash
Allowance for
doubtful accounts
Bad debt expense
Copyright © 2014 Pearson Education 14-39
Audited by TOC, STOT, and AP
Audited by AP and TDB
Audited by TOC, STOT, and AP
Sales Accounts
Receivable Cash in Bank
Sales transactions
Cash receipts transactions
Ending balance
Ending balance
TOC + STOT + AP + TDB = Sufficient appropriate evidence
Copyright © 2014 Pearson Education 14-40
Copyright © 2014 Pearson Education
Copyright
All rights reserved. No part of this publication may be reproduced,
stored in a retrieval system, or transmitted, in any form or by any
means, electronic, mechanical, photocopying, recording, or
otherwise, without the prior written permission of the publisher.
Printed in the United States of America.
14-41
top related