Wk 2 Discussion

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14-23 (Objectives 14-1, 14-3) The following questions deal with audit evidence for the sales and collection cycle. Choose the best response.

a.
An auditor is performing substantive tests of transactions for sales. One step is to trace a sample of debit entries from the accounts receivable master file back to the supporting duplicate sales invoices. What will the auditor intend to establish by this step?

  • (1)
    Sales invoices represent existing sales.
  • (2)
    All sales have been recorded.
  • (3)
    All sales invoices have been correctly posted to customer accounts.
  • (4)
    Debit entries in the accounts receivable master file are correctly supported by sales invoices.

b.
Which audit procedure is most effective in testing credit sales for overstatement?

  • (1)
    Trace a sample of postings from the sales journal to the sales account in the general ledger.
  • (2)
    Vouch a sample of recorded sales from the sales journal to shipping documents.
  • (3)
    Prepare an aging of accounts receivable.
  • (4)
    Trace a sample of initial sales orders to sales recorded in the sales journal.

c.
To determine whether internal control relative to the revenue cycle of a wholesaling entity is operating effectively in minimizing the failure to prepare sales invoices, an auditor would most likely select a sample of transactions from the population represented by the

  • (1)
    sales order file.
  • (2)
    customer order file.
  • (3)
    shipping document file.
  • (4)
    sales invoice file.

Wk 2 Discussion

Respond to the following in a minimum of 100 words:

Brittany Hanson

Hello class,

There are a variety of audit procedures for the audit of accounts receivable. The accounts receivable is typically the largest asset for the company. Thus, when performing and audit, it is important that the auditor spends a good amount of time examining and ensuring that the stated amounts are accurate. Matching the invoices to the shipping log is one good auditing procedure to verify the accounts receivable – and auditor can match the invoice dates to the shipment dates in the shipping log to ensure sales were recorded in the proper period. Another auditing procedure for the audit of accounts receivable is to review the credit memos issued by the company – reviewing a selection of the credit memos that were issued can help the auditor see if they were authorized properly and whether they were issued in the correct period and if they are indicative of any other problems. At my organization, we utilize both auditing methods even in daily operations. There are many times where it has been beneficial to match invoices to our shipping logs to verify the contents of packages and other reasons, so I can certainly see how this auditing procedure can tell the auditor a great deal about the receivables. Verifying the credit memos is also a very valuable method as well at my organization – I utilize credit memos on a daily basis, and they are a critical part of our accounts receivable and accounting, which is why I always stress the importance of being detailed when creating credit memos with my staff.

Respond to the following in a minimum of 100 words:

Talesha Alexander

Discuss audit procedures for the audit of accounts receivable. How does this apply to your chosen organization?

There are many procedures with auditing the accounts receivable. The first step is to start with the period-end accounts receivable aging reports and making sure the grand total is shown and compared to the general ledger. The auditor must add up the totals on the invoices on the accounts which they should match the total traced on the general ledger. There may be journal entries on the accounts receivable and the auditor should review the reason for the large amounts. Full details on why they are on there should be documented. There is also test done on the invoices to see if they were billed to the correct customer and in the correct amount. The auditor randomly selects which invoices to sample. They also look at the shipping logs. Cash receipts should only be reviewed if the accounts receivable in unavailable. One of the last steps is to compare a trend on the sales and accounts receivable from the last two years.

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