PENGAUDITAN – AK2107

Completing the Tests

in the Sales and Collection Cycle:
Accounts Receivable
 Objectives
Describe the methodology for designing tests
of details of balances using the audit
risk model.
 Contents
• Methodologi For Designing Test of Details of
Balances
• Designing Test of Details of Balances
• Confirmation of Accounts Receivable
• Developing Test of Details Audit Program
 Completing the Tests
in the Sales and Collection Cycle:
Accounts Receivable
Accounts Receivable Balance-related
Audit Objectives
Detail tie-in

Existence Rights

A/R
Completeness Audit Realizable value
Objectives

Accuracy Cutoff
Classification
 Methodology for Designing Tests
of Details of Balances for A/R

Phase I

Identify client Set tolerable Assess

business risks misstatement control risk
affecting and assess for sales and
Accounts inherent risk collection
Receivable for accounts cycle
receivable
Methodology for Designing Tests
of Details of Balances for A/R

Phase II

Design and perform tests of controls and

substantive tests of transactions
for the sales and collection cycle
 Methodology for Designing Tests
of Details of Balances for A/R

Phase III

Design and perform Design tests of details of

analytical procedures accounts receivable
balance to satisfy balance-
for accounts related objectives
receivable

Audit Sample Items to Timing

procedures size select
 Relationship Between Sales and
Accounts Receivable
ACCOUNTS RECEIVABLE
BALANCE-RELATED

Completeness

Classification
AUDIT OBJECTIVES

Detail tie-in

Realizable
Existence

Accuracy
Translation-related

Rights
Cutoff

value
audit objectives
Sales
Occurrence ×
Completeness ×
Accuracy ×
Posting and
summarization ×
Classification ×
Timing ×
 Relationship Between Sales and
Accounts Receivable
ACCOUNTS RECEIVABLE
BALANCE-RELATED

Completeness

Classification
AUDIT OBJECTIVES

Detail tie-in

Realizable
Existence

Accuracy
Translation-related

Rights
Cutoff

value
audit objectives
Cash receipts
Occurrence ×
Completeness ×
Accuracy ×
Posting and
summarization ×
Classification ×
Timing ×
 Learning Objective 2
Design and perform substantive analytical
procedures for accounts in the sales and
collection cycle.
Analytical Procedures for the Sales
and Collection Cycle
Compare by product line:
 Gross margin percentage with
previous years
 Sales by month over time
 Sales returns and allowances
as a percentage of gross sales
with previous years
Analytical Procedures for the Sales
and Collection Cycle
Compare with previous years:
 Individual customer balances over
a stated amount
 Bad debt expense as a percentage
of gross sales
 Days that accounts receivable
are outstanding
Analytical Procedures for the Sales
and Collection Cycle
Compare with previous years:
 Aging category as a percentage
of receivables
 Allowance for uncollectible accounts as
a percentage of accounts receivable
 Write-off of uncollectible accounts as a
percentage of total accounts receivable
with previous years
 Selected Comparative Information

Percent
Percent change
12/31/11 change 12/31/10 2009- 12/31/09
($000) 2010-11 ($000) 2010 ($000)

Sales 144,328 9.0 132,421 7.0 123,737

Sales return and allowance 1,242 3,9 1,195 13,6 1,052
Gross margin 39,845 9.6 36,350 7.0 33,961
Accounts receivable 20,197 7.3 18,827 14.1 16,505
Allowance for uncollectible accounts 1,240 (5,4) 1,311 21,5 1,079
Bad debt expense 3,323 (2.1) 3,394 7.3 3,162
Total current assets 51,027 14.0 44,779 6.6 41,989
Total assets 61,367 (7.0) 66,021 8.0 61,147
Net earnings 5,681 21.9 4,659 39.0 3,351
Number of accounts
receivable 258 16.7 221 5.7 209
Number of accts. rec. with
balances over $100,000 37 15.6 32 6.7 30
Analytical Procedures: Sales and
Collection Cycle
Design and Perform Tests of Details of A/R
Balance (Phase III)

 Planned detection risk for each

objective is an auditor decision

Combining the factors that determine

planned detection risk is complex
 Learning Objective 3
Design and perform tests of details of balances
for accounts receivable.
 Designing Tests of Detail
of Balances
Accounts receivable are correctly added and
agree with the Master File and the General
Ledger (aged trial balance).

 Recorded accounts receivable exist

 Existing accounts receivable are included
The Summation of Accounts Receivable
Agrees with the Master File and the General Ledger
 Designing Tests of Detail
of Balances

Accounts receivable are accurate

Accounts receivable are properly classified

Cutoff for accounts receivable is correct

 Designing Tests of Detail
of Balances

 Accounts receivable is stated at

realizable value

 The client has rights to accounts receivable

 Accounts receivable presentation and

disclosure
 Learning Objective 4
Obtain and evaluate accounts receivable
confirmations.
 Confirmation Requirements

Auditing Standards

United States International

Required Except Confirmations not

when: required
Expected low
response rate Alternate
Procedures
Low inherent &
control risks
Type of Confirmation

 Positive confirmation

Blank confirmation form

Invoice confirmation

Negative confirmation
Positive Confirmation
Negative Confirmation Requirements

 Risk of material misstatement is low

 Large number of small account balances

 Expected low exception rate

 Expect adequate consideration from

recipients
Negative Confirmation
 Timing

The most reliable evidence from confirmations

is obtained when they are sent as close to the
balance sheet date as possible.
 Sampling Decisions
Tolerable
misstatement

Inherent Risk Control Risk

Sample
Size factors

Achieved
Detection
Type of
risk from
Confirmation
other tests
Verifying Addresses and Maintaining
Control

The auditor should perform procedures to

verify the addresses or email addresses
used for confirmation.

Auditors must be responsible for mailing

the confirmations and maintaining control
of the confirmations until they are returned
from the customer.
 Follow-up on Nonresponses

When positive confirmations are used,

AU 330 requires follow-up procedures
for confirmations not returned by
the customer.

Alternate Procedures

Subsequent Duplicate Shipping

cash receipts sales invoices documents
 Analysis of Differences

 Payment-in-transit

Shipment-in-transit

The goods have been returned

Errors and disputes

 Drawing Conclusions

Reevaluate internal control

Evaluate the qualitative nature of

misstatements

Determine whether sufficient evidence

was obtained
Thankyou 