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This posting addresses audit objectives for A/R.

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

Solution Preview

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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