Designing Tests of Details of Balances Aged Trial balance Recorded accounts receivable exist Existing accounts Receivable are Included Accounts receivable are accurate Accounts Receivable are Properly Classified Cutoff for Accounts Receivable Is Correct Accounts receivable is stated at realizable value Accounts Receivable Presentation and Disclosures Are Proper Arens, Loebbecke; Auditing, &/E @2000 Prentice hall. Inc
Arens, Loebbecke; Auditing, 8/E ©2000 Prentice Hall, Inc. Aged Trial Balance Recorded Accounts Receivable Exist Existing Accounts Receivable Are Included Accounts Receivable Are Accurate Accounts Receivable Are Properly Classified Cutoff for Accounts Receivable Is Correct Accounts Receivable Is Stated at Realizable Value Accounts Receivable Presentation and Disclosures Are Proper
Confirmation of Accounts receivable AICPA Requirements 1. Accounts receivable are immaterial 2. The auditor considers confirmations ineffective evidence because response rates will likely be inadequate or unreliable 3. The combined level of inherent risk and control risk is low and other substantive evidence can be accumulated to provide sufficient evidence. Arens. Loebbecke; Auditing, 8/E @2000 Prentice hall. Inc
Arens, Loebbecke; Auditing, 8/E ©2000 Prentice Hall, Inc. Confirmation of Accounts Receivable AICPA Requirements 1. Accounts receivable are immaterial. 2. The auditor considers confirmations ineffective evidence because response rates will likely be inadequate or unreliable. 3. The combined level of inherent risk and control risk is low and other substantive evidence can be accumulated to provide sufficient evidence
misstatement risk for accounts FIGURE 15-1 receivable Assess control risk for Phase I d collection cycle Design and perform METHODOLOGY FOR tests of controls and substantive tests DESIGNING TESTS OF of transactions Phase ll DETAILS OF BALANCE for the sales and n cycle FORACCOUNTS RECEIVABLE perform analytical procedures for ase ble balance Audit details of accounts receivable balance Sample size Phase lll Items to select Arens. Loebbecke; Auditing, 8/E audit objectives Timing @2000 Prentice hall. Inc
Arens, Loebbecke; Auditing, 8/E ©2000 Prentice Hall, Inc. FIGURE 15 - 1 METHODOLOGY FOR DESIGNING TESTs OF DETAILS OF BALANCE FOR ACCOUNTS RECEIVABLE