Chapter 14 Audit of the Sales and Collection Cycle

1. Chapter 14 Audit of the Sales and Collection Cycle

2. Allison what are the primary transactions in the sales and collection cycle ?

3. Sales (cash sales and credit sales) • Cash receipts • Sales returns and allowances • Write-off of uncollectible accounts • Estimate bad debt expense

4. Sales & Collection Transaction cycle “credit sales” accounts receivable x.xx sales x.xx “cash receipts” cash x.xx accounts recx.xx

5. auditing account balances

6. auditing transaction cycles

7. Cash Receipts = beginning Accounts Receivable + Sales - ending Accounts Receivable

8. Ashley the SEC requires four criteria be satisfied in order to recognize revenue what are those four criteria ?

9. Revenue Recognition “SEC” • Persuasive evidence of an arrangement exists • Delivery has occurred or services have been provided • Seller’s price is fixed • Collectibility is reasonably assured

10. COSO components of internal control Control environment Risk assessment Control activities adequate separation of duties proper authorization of transactions & activities adequate documents & records page 337-341 physical control over assets & records independent checks on performance Information and communication Monitoring

11. Documents & Records Customer order p. 338 Sales order p. 338 Shipping document p. 338 Sales invoice p. 339 Sales journal p. 339 Accounts receivable trial balance p. 340 Remittance advice p. 340 Prelisting of cash receipts p. 340 Cash receipts journal p. 341

12. Barbara what is the objective of AU-C section 315?

13. AU-C 315 Understanding the Entity & Its Environment & Assessing RoMM .03 The objective of the auditor is to identify and assess the risks of material misstatement, whether due to fraud or error, at the financial statement and relevant assertion levels through understanding the entity and its environment, including the entity's internal control, thereby providing a basis for designing and implementing responses to the assessed risks of material misstatement.

14. Nikki sullivan What steps must we document to demonstrate a minimal understanding of the accounting system ?

15. Page 254/263 (what is a sufficient understanding?) For CREDIT SALES transactions Evaluate Risks related to all assertions for TRANSACTIONS Identify points in the transactions where material misstatements could occur How each significant class of transactions • Initiated • Authorized • Recorded – documents and accounting records • Processed through the accounting system • Financial reporting process, including disclosures

16. Assessing Control Risk significant classes of Transactions For each Significant Class of Transaction we must document our understanding of the Accounting Process from Initiation ---- into Financial Statements (probably with a flowchart)

18. Assessing Control Risk significant classes of Transactions For each Significant Class of Transaction we must document our understanding of the Accounting Process from Initiation ---- into Financial Statements (probably with a flowchart) and assess Control Risk for each of the 5 management assertions

19. Page 152

20. Kyle What is the objective of AU-C section 500?

21. AU-C 500Audit Evidence .04 The objective of the auditor is to design and perform audit procedures that enable the auditor to obtain sufficient appropriate audit evidence to be able to draw reasonable conclusions on which to base the auditor's opinion.

22. Assessing Control Risk significant classes of Transactions For each Significant Class of Transaction for mgmt assertions that we assess CR < MAX we must identify specific Control Procedures

23. preliminary Control Risk assessmentsignificant classes of Transactions preliminary Control Risk assessment pages 271 & 354

24. whenever we assess Control Risk less than Max Credit Sales Transactions p. 271

25. whenever we assess Control Risk less than Max Cash Receipts Transactions p. 354

26. Test of Controls Cyle sales & collection Class of transactionscredit sales Table 2 on page 346

27. Page 346 see Control Risk Matrix p. 271

28. Substantive Tests of TransactionsCycle sales & collectionClass of transactions credit sales Table 2 on page 346

29. vouch

30. Michael D Describe Vouching Describe Tracing

31. Test of Controls Cycle sales & collectionClass of transactions cash receipts Table 3 on page 355

32. whenever we assess Control Risk less than Max Cash Receipts Transactions p. 354

33. Page 355 see CR Matrix p. 354

34. Substantive Tests of TransactionsCycle sales & collectionClass of transactions cash receipts Table 3 on page 355

36. bank reconciliation page 462

37. page 469 proof of cash

38. page 469 proof of cash

39. Jordan How do we reduce detection risk ?

40. Megan What is the achieved detection risk (not planned detection risk) at the start of every audit ?

41. Kristine what is the audit risk model ?

42. Audit Risk Model

43. Page 152

45. cut-off as of 12/31/2012

46. Katie credit sales In the Sales Journal ---- Are you going to audit the last 25 entries prior to 12/31/12 or the first 25 entries after 1/1/13

48. Brigid will you Vouch or Trace ?

49. Scott A what does the evidence indicate if you Vouch the last 25 entries in the Sales Journal, prior to 12/31/12 to Shipping Documents dated prior to 12/31/12?

50. Kelly what does the evidence indicate if you Vouch the last 25 entries in the Sales Journal, prior to 12/31/12, to Shipping Documents which are dated after 1/1/13?