Exam 13: Completing Tests in the Sales and Collection Cycle: Accounts Receivable

When the confirmation requests are returned by the customer, in many cases, they are caused by between the client's and the customer's records.

An auditor is concerned that accounts receivable may be understated resulting from sales to customers that have been omitted from both the sales journal and the accounts receivable master file. Describe the procedure(s) the auditor should perform in these circumstances.

When no reply to a positive confirmation is received, the auditor:

The bad debt expense is a residual balance that can be verified by a reperformance test.

Which one of the following circumstances would indicate that negative confirmations should NOT be used on this engagement?

Tests of details of balances are directed to:

For most audits, a proper cash receipts cutoff is more important than either the sales or the sales returns and allowances cutoff.

A high acceptable audit risk will permit a higher planned detection risk than if acceptable audit risk were low.

For most audits, inherent risk for accounts receivable is usually moderate or low except for the realisable value objective and the cutoff objective.

Tests of details of balances focus on testing the year- end balances of balance sheet accounts.

Design and perform analytical procedures for accounts receivable balance is part of which phase of the audit?

The most important test of details of balances for accounts receivable is:

The following audit procedure tests primarily which balance- related audit objective for accounts receivable: Inquire of management whether there are any related- party loans.

A customer mails and records a cheque to a client for payment of an unpaid account on December 30. The client receives and records the amount on January 2. The records of the two organisations will be different on December 31.

Assess control risk for accounts receivable is part of which phase of the audit?

The audit working papers often include a client- prepared, aged trial balance of accounts receivable as of the balance sheet date. This aging is BEST used by the auditor to:

Discuss the audit procedures performed when testing the detail tie- in objective for accounts receivable, and explain why this objective is ordinarily tested before any other objectives for accounts receivable.

In confirming accounts receivable balances, the auditor finds overstatements caused by mistakes in billing customers which will then overstate both accounts receivable and sales.

The criterion used by most merchandising and manufacturing clients for determining when a sale takes place is whether an order for goods has been received from a customer (customer order).

If accounts receivable accounts with credit balances are significant, they should be: