We conducted several processes to test the accounts receivable of Wealthy Watches Inc. At the beginning, we agreed the balance of the accounts receivable detail listing to the trial balance and subsequently to the financial statements to ensure completeness of the population.
Before conduct testing, we made professional judgment to identify the most risky items in a population for detailed testing. In this process, the sufficiency of population will be addressed because that the risk-based approach will only test the sampled part of population, the remaining part of population will be immaterial or testing in other manners. After imported data file, we must ensure the accurate of data population before conduct testing.
First, we conducted risk-based approach with data analysis techniques-unusual invoice and unusual comments, to identify the unusual items that are in the accounts receivable detailed listing, and tested whether there are invoices outside the expected range of invoice number and “special” comments associated with accounts receivable items. As a result, there were no invoice number out of range, and Invoice 1000919, 1000845, 1001097 are “special” comments associated with accounts receivable.
…show more content…
We applied judgment to determine whether any specific items within the population should be selected for individual testing in order to mitigate RMM. We inputted High Value Amount which separated high-risk transactions and low-risk transactions which can reduce the assurance needed from sampling procedure and the necessary sample size. Also, we took into account tolerable misstatement for the population; the allowable risk of incorrect acceptance and additional characteristics of the population to determine which items would be selected in a sample for particular substantive test of
The population sampled due to its specific nature i.e., college students, and college graduates would need to be contemplated in regards to the testing results as it is offered as a depiction of the general population.
In this activity you will collect data and then perform statistical analyses to determine measures of central tendency and variation of the data. You will also represent
Sales invoices are prepared in batches on a daily basis using numbered sales invoices. Sales invoice numbers are automatically generated by the company’s computer system. The accounts receivable clerk does not have appropriate computer rights to override the computer-generated invoice number. Upon preparing sales invoices, the accounts receivable clerk verifies that the first invoice number of the batch is consistent with the last invoice number of the previous batch. Inconsistencies or skipped sales invoice numbers are investigated and resolved before new sales invoices are prepared. The items shipped are compared to the items billed for proper quantity, price, and other sales order terms.
There are several red flags in the invoices. There are several invoice numbers that are repeated and have an A at the end of the repeated invoice.
In order to confirm the accounts receivable balances, I decided to use positive confirmations since this was my first time auditing the company and the collateral for the loan would be the receivables. The confirmations helped to verify the accuracy and existence of the accounts. I also calculated the Receivables Turnover Ratio in order to better evaluate the overall success of collection on accounts. The sample size that I chose was determined by the factors of tolerable misstatement, inherent risk, control risk, achieved detection risk
Accounts receivable are amounts owed by customers on account. They result from the sale of goods and services on credit. These receivables are generally expected to be collected within 30 to 60 days. They are typically the most significant type of claim held by a company. Accounts receivable and notes receivable resulting from sales are also known as trade receivables. Accounts receivable resulting from sales are referred to as trade receivables in Alcatel's financial statements.
The interview with Colin Smith, from Office Products Depot, meant I was able to identify the accounts receivable subsystem they used and their accounts receivable management. I focussed on their policies for the offering and checking of credit, managing credit levels, charging the credit customers, receiving payment from credit customers and the general management of credit customers. I will be using the information from the interview with Colin as well as information from fictitious accounts receivable to explain their policies.
The total Accounts Receivable balance in the records of $4,752,257.70 was verified by setting a filter of
Account receivables accounts for purchases which consumers have not yet aid for. This takes cares of any losses that the firm might incur due to allowing credit to certain clients. Bad debts are recorded in the income statement and they represent the des which the company doesn’t expect to be paid back. The account
d. Trace the date, check number, and amount of outstanding item – Occurrence & Completeness. (AU-C 315.A114 a.i-ii)
11. Accounts receivable turnover and days sales in accounts receivable for the last three years:
The sampling plan in the design of controls does not provide tests about revenues and accounts receivables. The weakness that I could see is the fact that goods that were delivered to customers were not billed which result in bill of lading not being pre-numbered. Because of this, bills of lading do not count as an effective sampling unit. For a successful audit, auditors need to evaluate orders randomly and check to see if the goods were shipped and the customers received invoices prior to the receipt of the product, Therefore in this case, existence/occurrence is the course of action for the auditors.
In order to test his hypothesis, the author followed the Dechow and Dichev (2002), which examines the standard deviations of residuals from a regression of accounts receivable accruals on corresponding cash flow realizations. The model uses information related to accounts receivable, sales cash collected during the periods, and errors in accounts receivable accruals (sresid). The author
How large is this problem? The problem was unsure to the participants in the case but the problem is significant enough that it is brought to attention. It was also presented that the new tests would be expensive but this a very small factor to this problem.