Moses San Miguel

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Assertions Existence and occurrence Audit Objectives: Substantiate the existence of receivables and the occurrence of revenue transactions. Prove none of the account receivables are fictitious. Completeness Audit objectives: Establish the completeness of receivables and revenue transactions. Rights and obligations Audit objectives: Determine the client has rights to the recorded receivables. Prove the accounts receivable are collectible in the normal course of business and are bona fide claims owe the company. Valuation or allocation Determine that the valuation of receivables and revenue is at appropriate net realizable values. Presentation and disclosure Audit objectives: Determine that the presentation and disclosure of receivables and revenue are adequate, including the separation of receivables into appropriate categories, adequate reporting of any receivables pledged as collateral, and disclosure of related party sales and receivables. Ensure the pledged accounts receivables or accounts receivables used as collateral are disclosed and receivables from directors, officers and affiliates are separately disclosed. From the internal control questionnaire of credit sales system, we have discovered some internal control weaknesses. Q1. Accounts receivable clerk has access to customer checks and cash prelist but the customer subsidiary ledgers should be maintained by a person who has no access to cash. Q2. All LAN reports and printouts are left unlocked and are accessible to anyone. Additionally, the cashier has access to the LAN accounts receivable application. However, unauthorized person should be unable to obtain access to customer accounts. Q6. Write-offs of bad debts are approved by Brenda Robertson, credit manager, who initials them. However, write-offs of bad debts should be approved by an official not associated with the selling or credit functions. Q9. Sales invoices are not checked as to prices and mechanical accuracy. Q14. Customers are billed by the bookkeeper, Don McKenna, who records journal entries. However, customers should be billed by someone who has no other sales or accounts receivable responsibilities. Program Steps Obtain an aged trial balance of trade accounts receivable and analyses of other accounts receivable and reconcile of ledger. If the client has any accounts receivable other than trade accounts, the auditors also should obtain similar analyses of those accounts. When trail balances or analyses of accounts receivable are furnished by the client’s employees, some independent verification of the listing is essential. Determination of the proper extent of testing should be made in relation to the adequacy of the controls over receivables. Footings, crossfootings, and aging should be tested. In test agings, it is important to test some accounts classified as current, as well so those shown as past due. These accounts should be traced to the subsidiary ledgers. The totals of schedules prepared by client personnel should also be compared with the related controlling accounts. In addition, the balances of the subsidiary ledger records should be verified by footing the debit and credit columns on a test basis. Financial statement assertion: valuation and allocation Internal control weaknesses addressed: Q3 Obtain analyses of notes receivable and related interest and reconcile to the general ledger. An analysis of notes receivable supporting the general ledger control account may be prepared by the client’s staff. In addition to verifying the accuracy of the analysis prepared by client, selected items should be traced to the accounting records and to the notes receivable. Financial statement assertion: valuation and allocation Inspect notes on hand and confirm those with holders. The inspection of notes receivable on hand should be...
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