Exam 11: Auditing Revenue, Related Accounts, Audit of Acquisition and Payment Cycle and Inventory

Correct Answer:

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Potential risks associated with accounts receivable include:
• excessive credit memo or other credit adjustments to accounts receivable after the end of thefiscal year
• customer complaints and discrepancies in accounts receivable confirmations (e.g. disputes overterms, prices or amounts)
• unusual entries to the accounts receivable subsidiary ledger or sales journal
• missing or altered source documents or the inability of the client to produce original documentsin a reasonable period of time
• a lack of cash flow from operating activities when income from operating activities has been reported
• unusual reconciling differences between the accounts receivable subsidiary ledger and controlaccount
• sales to customers in the last month of the fiscal period at terms more favourable than previous months
• pre-dated or post-dated transactions
• large or unusual adjustments to sales accounts just prior to or just after the fiscal year end.