Auditing and Assurance Services “an integrated approach
Answer: Bill of lading is often transmitted alectronically, once goods have shipped, and automically generates the related sales invoice as well as the entry in the sales jounal. Sales Invoice is a document indicating the description and quantity of goods sold, the price, freight charges, insurance, terms, and other relevant data. Credit memo is a document indicating a reduction in the amount due from a cutomer because of returned goods or an allowance. Remittance advice is document mailed to the customer and typically returned to the seller with the cash payment. Monthly statement to customers is a document sent by mail or electronically to each customer indicating the beginning balance of their accounts receivable, the amount and date of each sale, cash payment received, credit memos issued, and the ending balance due.
Answer: very important that there is supervision in each loan transaction and loan approval is usually done by a financial manager in a company. effect adequate control is to oversee every loan transaction can be responsible for anyone who approve the credit transaction.
Answer: Providing for bad debts because companies cannot expect to collect on 100% of their sales, accounting principles require them to record bad debt expense for amount they do not expect to collect. Most companies record this transaction at the end of each month or quarter. Wriiten off uncollectible accounts regardless of the diligence of credit department, some customers do not pay their bills. After concluding that an amount cannot be collected, the company must write it off. Typically, this occurs after a customer files for bankruptcy or the accounts is turned over a collection agency. Proper accounting requires an adjustment for these uncollectible accounts.
Answer: Before goods shipped, a properly authorized person must approve credit to the customer for sales order. weak practices in credit approval often result in excessive bad debts and account receivable that may be uncollectible. an indication of credit approval on the sales order often serves as the approval to ship the goods.
Answer: 1. Recorded sales are for shipments actually made to notifictitious customers = credit is approved automically by computer by comparison to authorized credit limits.
2. Existing sales transactions are recorded (completeness) = shipping documents are preenumbered and accounted for weekly.
3. Recorded sales are for the amount of goods shipped and are correctly billed and recorded (accuracy) = batch total of quantities shipped are compared with quantities billed.
4. sales transaction are correctly included in the accounts receivable master file and are correctly summarized (posting and summarization) = computer automically post transactions to the accounts receivable master file and general ledger.
5. sales transactions are correctly classfiled ( classification) = accounts classification are internally verified.
6. sales are recorded on the correct dates (timing) = shipping documents are prenumbered and accounted for weekly by the accountant.
Answer: auditors study the clients flowcharts, prepare an internal control questionnaire, and perform walkthrough test of sales.
Answer: proper separation of duties helps prevent various types of misstatements due to both errors and fraud.
Answer: Prenumbering is meant to prevent both the failure to bill or record sales and the accurrence of duplicates billings of recordings. To use this control effectively, a billing clerk will file a copy of all shipping documents in sequential order after each shipment is billed, while someone else will periodically account for all numbers and investigate the reason for any missing documents.
Answer: 1. Credit must be properly authorized before a sale takes plece.
2. Goods should be shipped only after proper authorization.
3. Pricei including basic terms, freight, and discounts, must be authorized.
The first two controls are meant to prevent the loss of company assets by shipping to fictitious customers or those who will fail to pay for the goods. Price authorization is meant to ensure that the sale is billed at the price set by company policy.
Answer: the sales journal must be correctly totaled and posted to the general ledger if the financial statements are to be correct. In most engagements, auditors perform some clerical accuracy test such as footing the journals and tracing the totals and details to general ledger and the master file, to check whether there are errors or fraud in the processing of sales transactions. Tracing from the sales journal to the master file is typically done as a part of fulfilling other transaction-related audit objective, but footing the sales journal and tracing the totals to the general ledger are done as separate procedures.
Answer: the first is materiality. Is many instances, sales returns and allowances are so immaterial the auditor can ignore them. The second difference is emphasis on the occurrence objective. For sales return and allowances, auditors usually emphasize testing recorded transactions to uncover any theft of cash from the collection of accounts receivable that was covered up by a fictitious sales return or allowance.
Answer: An essential part o fauditors responsibility in auditing cash receipts is to identify deficiencies in internal control that increase the likelihood of fraud. They emphasize those audit procedures that are designed primarily for the discovery of fraud.
Answer: 1. Recorded cash receipts are for funds actually received by the company(accurence) = accountant independenly reconciles bank account and bats total of cash receipts are compared with computer summary reports.
2. cash received is recorded in the cash receipts journal (completeness) = prelisting of cash receipts is prepared, checks are restrictively endorsed, batch total of cash receipts are compared with computer summary reports and statement are send to customers each month.
3. cash receipts are deposited and recorded at the amounts received (accuracy) = accountant independently reconciles bank account, bats total of cash receipts are compared with computer summary reports and statement are send to customers each month.
4. cash receipts are correctly included in the accounts receivable master file and are correctly summarized (posting and summarization) = statement are send to customers each month, computer automically post transactions to the accounts receivable master file and general ledger, accounts receivable master file is reconciled to the general ledger on a monthly basis.
5. cash receipts transactions are correctly classified (classification) = cash receipts transactions are internally verified.
6. cash receipts are recorded on the correct dates( timing) = procedures require recording of cash on a daily basic.
Answer: 1. Observe prelisting of cash receipts.
2. Observe endorsements of incoming checks.
3. Examine file of the batch total for initials of data control clerk.
4. Observe whether monthly statements are sent.
Answer: A useful audit procedure to test whether all recorded cash receipts have been deposited in the bank account is a proof of cash receipts. But it can help uncover recorded cash receipts that have not been deposited, unrecorded deposites, unrecorded loans, bank loans deposited directly into the bank account, and similar misstatement.
Answer: lapping of accounts receivable is the postponement of entries for the collection of receivables to conceal in existing cash shortage. The embezzlement is perpetrated by a person who handles cash receipts and then enters them into the computer system.
Answer: normally verification of the accounts written off takes relatively little time, typically auditor examines approval by the appropriate person for a sample of accounts written off it is also usually necessary for the auditor to examine correspondence in the clients files estabilishing their uncollectibility.
Answer: test of control and substantive test can be served as a control tool in dealing with the emergence of misstatements and fraud in preparing the consolidated accounts receivable as well as to prevent embezzlement of funds by lapping the use of cash in a way to delay the recording of receivables.
Answer: in addition internal controls directly related to account balances and presentations and disdosure may exist, even if they have not been identified or tested as a part of tests of controls or substantive test or transaction.
Answer: think it is not good policy because the tests of controls should be done regularly to be more easily controlled, if carried out by the year end will be less effective because if the transactions that occurred in March that there may be a mistake if not immediately reviewed the presentation will result in an error presentation in subsequent financial reports.
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