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Chapter 16 - Completing the Tests in the Sales and Collection Cycle: - page 3 / 5

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16-24(continued)

a.

BALANCE-RELATED AUDIT

OBJECTIVE

b.

PREVENTIVE INTERNAL CONTROL

c.

TESTS OF DETAILS OF BALANCES AUDIT PROCEDURES

5.Transactions are recorded in the proper period (cutoff).

The client should follow a policy of holding open the books to record any returns in the subsequent period which apply to goods shipped and sales recorded in the current  period.

The auditor should review returns recorded in the subsequent period to determine if they apply to goods shipped and sales recorded prior to year-end.

The auditor should perform an analytical test to determine whether or not returns in the first month of the next year are similar in magnitude to those experienced in the same period of previous years.

6.Existing  accounts receivable are included in the aged trial balance (com- pleteness).

The accounts receivable master file should be reconciled to the control account periodically by an independent person.

Foot the aged trial balance and compare the total to the general ledger.

Trace a sample of accounts from the master file to the aged trial balance to determine if all are included.

7.Accounts receivable exist (existence).

The accounts receivable master file should be reconciled to the control account periodically by an independent person.

Foot the aged trial balance and compare the total to the general ledger.

Trace from the aged trial balance to the master file, looking for duplicates.

8.Accounts receivable are properly  classified (classification).

The client should maintain separate accounts for the recording of receivables due from affiliated companies.

The auditor should review the trial balance of accounts receivable to determine whether or not accounts from affiliated companies are included in the customer accounts.

The auditor should be aware of affiliated companies and the transactions between them and the client, and should inquire and follow up to determine that accounts receivable from affiliates are not included in the accounts receivable from customers.

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