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This posting addresses audit objectives for A/R.

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In the audit of accounts receivable, auditors develop specific audit assertions related to the receivables. They then design specific subtantive procedures to obtain evidence about each of these assertions. Here is a selection of account receivable assertions:

a. Accounts receivable represent all amounts owed to the client compagny at the balance sheet date.
b. The client compagny has a legal right to all accounts receivable at the balance sheet date.
c. Accounts receivable are stated at net realizable value.
d. Accounts receivable are properly describle and presented in the financial statement.

For each of these assertions, select the audit procedure (below) that is best suited for the audit plan. Select only one procedure for each audit objective.

1. Analyze the relationship of accounts receivable and compare with relationships for preceding periods.
2. Perform sales cutoff tests to obtain assurance that sales transactions and corresponding entries for inventories and cost of goods sold are recorded in the same and proper period.
3. Review the aged trial balance for significant past-due accounts.
4. Obtain an understanding of the business purpose of transations that resultted in account receivable balances.
5. Review loan agreements for indications of whether accounts receivable have been factored or pledged
6. Review the accounts receivable trial balance for amounts due from officers and employees
7. Analyze unsual relationships between monthly accounts receivable and monthly accounts payable balances

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1. Analyze the relationship of accounts receivable and compare with relationships for preceding periods.
A & B: Both of these would apply because we are analyzing a relationship as of the balance sheet date.

2. Perform sales cutoff tests to obtain assurance that sales transactions and corresponding entries for inventories and cost of goods sold are recorded in the same and proper period.
A: A would apply here, but the other ...

Solution Summary

The solution provides the solution for which assertions to pair with the correct substantive procedures.

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1. Why do auditors have to consider the internal controls of the organization? What are some key elements of internal control? Which are the most important? How will the auditor have to modify the audit program if the internal controls are deemed inadequate to support management assertions?

2. How are the analytical procedures used in an audit engagement? What premise underlies the use of analytical procedures in auditing? What sources of information can an auditor use to develop expectations? Please provide examples.

3. What are the two types of audit tests? What are some examples of each of these two types of tests? How will the auditor use the data gathered from these tests?

4. (Audit programs and assertions) Assume that you are responsible for developing an audit program for a manufacturing client that sells to over 1,400 customers. You want to ensure your audit program addresses all relevant assertions for sales and accounts receivable. Address the following question in the context of the audit sales and receivables for this manufacturing client.
I only need a & b on this one.

Required
a. What is the purpose of an audit program?
b. Explain why auditors translate audit assertions into specific audit objectives when developing an audit program.

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