Audit Assertions For Accounts Receivable


Confirmation of accounts receivable is a generally accepted auditing procedure. Some examples of cycles are the RRR (Revenues, Receivables, and Receipts) cycle and the PPP (Purchases, Payables, and Payments) cycle. Confirmation procedures frequently are relevant when addressing assertions associated with account balances and their components, but need not be restricted to these items. Occurrence is a concern when auditing sales. Audit procedures for receivables AUDIT PLAN: RECEIVABLES Completeness Agree the balance from the individual sales ledger accounts to the aged receivables' listing and vice versa. income by deducting expenses related to the same income. Here is a selection of accounts receivable assertions: a. There are various assertions including completeness, accuracy, existence, and cutoff, to name a few. Absorption Costing. Accelerated Depreciation Method. Audit Objectives Financial Statement Assertions. Vivian Costa 6-26 (Audit programs and assertions) Assume that you are responsible for developing an audit program for a manufacturing client that sells to over 1,400 customers. Because as an internal Auditor i faced client recorded Replica / Duplicate / False Entries in their General. Cash receipts and accounts receivable C. Finally, Bill’s accounts receivable turnover ratio for the year can be like this. Identify risk assessment concepts for Accounts Receivable (AR) and revenue; Recognize typical key controls related to the audit assertions in AR and revenue; Differentiate audit assertions linked to related audit procedures; Recognize analytical review as a substantive procedure in AR and revenue. Since this is your own audit, this does not need to be a formal document, and. Modification to the auditing procedures listed below. 14 Auditing standards related to risk assessment give prominent recognition to the idea of relevant assertions. Auditing Accounts Receivable (On-Demand) 2019 Description Typically one of the larger balance sheet accounts, accounts receivable, and its related contra account allowance for doubtful accounts, is an area often assigned to new staff. As you know, borrowers often pledge accounts receivable as collateral. They are saying that the $50,000 A/R balance includes all accounts receivable. TOPICS IN REVENUE/RECEIPT Relationship assertions & audit CYCLE procedures Relationship audit risk, client strategies, substantive tests Substantive tests for assertions Revenue recognition, earnings manipulation, & channel stuffing Audit sampling & accounts receivable Computer-assisted audit techniques. Completeness assertion. In the audit of accounts receivable, auditors develop specific audit assertions related to the receivables. CHAPTER 11 Accounts Receivable & Cash Balances By David N. Compute the ratio of allowance for uncollectible accounts divided by accounts receivable and compare with previous years. Accounts Receivable Aging Analysis. Modification to the auditing procedures listed below. On the surface, this assertion appears to be one of the least troublesome. Existence assertion. Management assertions are claims made by members of management regarding certain aspects of a business. , 'Measure twice, cut once'—can be just as useful in the former, with a few modifications. The department has accounts receivable from internal parties (employees. 3) Verification of title documents of fixed assets - Existence - Completeness. Without the documentation and analytical procedures to support financial transactions, the accuracy of the accounts receivable will not be strong and this will greatly overstate or understate each account. 18-5 are those for cash:. Compile a list of your findings into a succinct audit report. Failure to include an account receivable from a customer in the accounts receivable trial balance when a receivable exists violates the completeness objective. • Relationship between financial statement assertions and audit procedures within the revenue/receipt cycle. The purpose of this audit procedure is to establish that A. (c) The possible substantive procedures are as follows: Compare receivable’s turnover and receivables’ days to those of last year, and the company’s credit policy. B) gross accounts receivable less bad debt expense. · Valuation. Accounts Receivable Days is an accounting concept related to Accounts Receivable. Absolute Advantage. (Objective 6-6) MANAGEMENT ASSERTIONS Management assertions are implied or expressed. For example, when cash is collected from a customer for a specific sales entry, the cash account is credited and the accounts receivable account debited. Rights and obligations assertion. Audit Assertions are also known as Management Assertions and Financial Statement Assertions. Existence assertion. Presentation, however, is treated as a single assertion. audit procedures are performed to ensure the assertions, as objectives, are met. These assertions are existence or occurrence, rights and obligations, completeness, valuation or allocation, and presentation and disclosure. Average accounts receivable can be calculated by averaging beginning and ending accounts receivable balances ((10,000 + 20,000) / 2 = 15,000). Occurrence. The allowance for doubtful accounts is fairly presented in amount. You want to ensure your audit program addresses all relevant assertions for sales and accounts receivable. TOPICS IN REVENUE/RECEIPT Relationship assertions & audit CYCLE procedures Relationship audit risk, client strategies, substantive tests Substantive tests for assertions Revenue recognition, earnings manipulation, & channel stuffing Audit sampling & accounts receivable Computer-assisted audit techniques. Auditors are concerned with assertions in creating their audit steps. 6-26 (Audit programs and assertions) Assume that you are responsible for developing an audit program for a manufacturing client that sells to over 1,400 customers. Valuation can be supported by the process of aging the current accounts receivable to evaluate the adequacy of the allowance account. A major auditor activity is to contact your customers directly and ask them to confirm the amounts of unpaid accounts receivable as of the end of the reporting period they are auditing. Auditing accounts payable, whether as part of a larger internal audit or as a standalone process, is an essential weapon in the war on fraud and inaccuracy. • Where overdue receivables have not paid, trace the balances to the provision for doubtful debts. An auditor most likely would limit substantive audit tests of sales transactions when the risk of material misstatement are assessed as low for the existence and occurrence assertions concerning sales transactions and the auditor has already gathered evidence supporting A. Question: In the audit of accounts receivable, auditors develop specific audit assertions related to the receivables. This category of management assertions addresses the correctness of balance sheet account balances at year-end. In testing the existence assertion of accounts receivable during the course of the audit year, the internal auditors had sent out confirmations to customers with accounts receivable balances and accounts written off to justify their conclusions in the area. For example, when cash is collected from a customer for a specific sales entry, the cash account is credited and the accounts receivable account debited. 11-13 The client company should request (on its letterhead) the customer to confirm the account receivable. This is primarily for larger account balances, but may include a few random customers having smaller outstanding invoices. It represents the balance owed by customers for products sold or services rendered. An entity’s documentation of it process for testing trade receivables for impairment is one of the key areas most auditors would consider during their audit. Test subsequent receipt of cash from customers. For example, review the cutoff procedures at period-end. First, it's easy to increase net income by not recording period-end payables. The following are specific balance-related audit objectives applied to the audit of accounts receivable (a-h) and management assertions (1-4). These claims are known as assertions. Such analytical procedures to verify existence assertions would be bank reconciliations and cash flow analyses. Understatements of accounts receivable are less likely to be reported to auditors. When accounts receivable are confirmed at an interim date, the auditors need not be concerned with a. Average accounts receivable can be calculated by averaging beginning and ending accounts receivable balances ((10,000 + 20,000) / 2 = 15,000). a) Audit tests I would carry out to verify trade accounts receivable at the year end i) Cut off tests I would perform this test to ascertain that the transaction of the trade receivable relates to the period in which the balances are recorded ii) Walk through audit test. Vouch sales invoices and shipping documents. Confirmation is most likely to be a relevant form of evidence with regard to assertions about accounts receivable when the auditor has concerns about the receivables' A. In the audit of accounts receivable, the most important emphasis should be on the. The accounts receivable department uses the sales ledger, because a sales ledger normally records The sales a business has made. Please read this blog and provide your comments. Accounts Receivable. The Use of Assertions in Obtaining Audit Evidence. Some examples of cycles are the RRR (Revenues, Receivables, and Receipts) cycle and the PPP (Purchases, Payables, and Payments) cycle. Shipping and receiving activities D. This case helps prepare students for internships and careers in the audit profession by providing them with a realistic simulation of year-end substantive testing of Accounts Receivable. This chapter relates primarily to substantive tests for cash balances. Auditing standards require the auditor to prepare a written audit program. Goods billed were not shipped. These claims are known as assertions. For example, when cash is collected from a customer for a specific sales entry, the cash account is credited and the accounts receivable account debited. What are Audit Assertions? Audit assertions make up an important element in the different stages of financial statement audits. The MCQ testlets account for 50% of this section’s score while the TBSs make up the remaining 50%. CHAPTER 11 Accounts Receivable & Cash Balances By David N. Financial vice president received checks made out to suppliers and the supporting invoices, signed the checks, and mailed the checks. Accounts Receivable Days is an accounting concept related to Accounts Receivable. receivables and accounts payables balances so that appropriate audit procedures can be designed to address such risks. Second, many forms of theft occur in the accounts payable area. Example of Control Accounts. Shipping and receiving activities D. That is not an exhaustive list, but you see what I am getting at. Remember, accounts receivable is when there had been credit sales and now, instead of giving you cash up front, the auditees companies, customer say, I'll promise to pay you later. On the surface, this assertion appears to be one of the least troublesome. Rights and obligations assertion. confirming a client's year-end accounts receivable is to check certain management assertions such as existence, rights and obligations, and valuation. In this post, I'll answer questions such as, "how should we test accounts payable? " And "should I perform fraud-related expense procedures?". 2 Risk Assessment The following key risks were identified during the planning phase of the audit:. • Where overdue receivables have not paid, trace the balances to the provision for doubtful debts. Second, many forms of theft occur in the accounts payable area. An audit report is simply a document that summarizes the findings of your audit. A Terms and Definitions. 18-5 are those for cash:. This is useful for determining how efficient the company is at receiving whatever short-term payments it is owed. audit procedures are performed to ensure the assertions, as objectives, are met. As such, testing the validity of various implicit managerial assertions is a key objective of an internal auditor. Of course, your account receivable department needs processes in place to update the software between the office and online payment system to keep the information accurate and up-to-date. Review lawyers ’ letters to debtors, if any, for consideration of impairment of trade. The accounts receivable confirmation process of an audit is a necessary but time-consuming procedure. They then design specific substantive procedures to obtain evidence about each. Account Balances - These assertions are generally pertaining to the end of period balance sheet accounts such as assets, liabilities and equity balances. Ensure that Accounts Receivable deadlines are respected and audit compliant Ensure that cash collections are maximised and debtor days maintained at acceptable levels System testing support for projects, defect fixes and enhancements. ensure that all accounts receivable are recorded (completeness assertion). Covering all assertions (existence, completeness, cut-off, valuation and allocation, rights and obligations). For example, confirmation of balance from a customer is a relevant evidence as regards existence of receivable, but it may not be relevant as regards collectability of the balance due from customer Also, physical observation of inventories is relevant evidence relating to existence, but is not appropriate evidence to. Some examples of cycles are the RRR (Revenues, Receivables, and Receipts) cycle and the PPP (Purchases, Payables, and Payments) cycle. This relationship to assertions is important for the exam! Existence - Ensure they really do exist and so not overstated. Rights and obligations Ensure client has the legal right to the amounts receivable. References to “decisions made. The directional risk for accounts receivable and revenue is an overstatement. The factor typically charges interest on the advance plus a commission. Jazzit Feature Request and Bug Report. Completeness assertion. A continuing audit client's property, plant and equipment and accounts receivable accounts have approximately the same year-end balance. Payroll- check cheques paid are recorded in payroll system correctly. The five transaction cycles which relate directly to general cash balances are revenue, expenditure, financing, investing, and personnel services. The accounts payable department of your company and a home workshop may not, at first glance, have many things in common. This test is performed by Homer and Moe primarily to substantiate which of the following assertions?. Auditing (3102AFE) 4. Assertions for this wave include all material reporting entity line items, account balances and financial transactions impacting the Balance Sheet, Statement of Net Cost, and Statement of Changes in Net Position not covered by Waves 2 or 3 (e. In the audit of accounts receivable, the most important emphasis should be on the a. An auditor reviews aged accounts receivable to assess likelihood of collection to support management's assertion about account balances of valuation and allocation In the audit of accounts payable, an auditor's procedures will most likely focus primarily on management's assertion about account balances of. The auditor uses the factors in the rows to aid in assessing planned detection risk for accounts receivable, by objective. For example, review the cutoff procedures at period-end. Accounts receivable represents an account with many transactions and therefore would be expected to require significant audit time. Homer and Moe, PC are auditing the financial statements of Lyoncraft, Inc. You want to ensure your audit program addresses all relevant assertions for sales and accounts receivable. income by deducting expenses related to the same income. University. Assertions or management assertions in audit or auditing simply means what management claims. Some examples of cycles are the RRR (Revenues, Receivables, and Receipts) cycle and the PPP (Purchases, Payables, and Payments) cycle. Assertions are used by the auditors to assess misstatements and to obtain evidence. By assessing the sales process and gaining comfort around the company. The accounts payable department of your company and a home workshop may not, at first glance, have many things in common. The audit committee approved an audit of accounts receivable as part of the Three-Year Risk-Based Audit Plan for 2009–2010 to 2011–2012. Presentation and disclosure assertion. Accelerated Depreciation Method. The list referred to in the specific balance-related audit objectives is the list of the accounts receivable from each customer at eh balance sheet date. A schedule of time spent on the engagement by each individual auditor. For example, confirmation of balance from a customer is a relevant evidence as regards existence of receivable, but it may not be relevant as regards collectability of the balance due from customer Also, physical observation of inventories is relevant evidence relating to existence, but is not appropriate evidence to. classification. Absorption Costing. Abnormal Spoilage. An audit report is simply a document that summarizes the findings of your audit. The existence and completeness objectives emphasize opposite audit concerns. • Determine if you will want to do any field trips during your on-site audit time. 124) that the auditor should use assertions for classes of transactions, account balances, and presentation and disclosures in sufficient detail to form a basis for the assessment of risks of material misstatement and the design and performance of further audit procedures. Existence assertion. Ensure each account is settled from time to time. Accounts receivable (AR) is the balance of money due to a firm for goods or services delivered or used but not yet paid for by customers. When it is used as a control account, it will contain only summary. ―Auditing is a systematic process of objectively obtaining and evaluating evidence regarding assertions about economic actions and events to ascertain the degree of correspondence between those assertions and established criteria and communicating the results to interested users‖ (American Accounting Association, 1972). In the audit of accounts receivable, the most important emphasis should be on the. classification. Auditing: May be defined as the analytical and critical examination of the books of accounts checking and verification of evidence in support of entries appearing in the books of accounts, and ascertaining the authenticity of the assertions made in the financial statements. For example, when cash is collected from a customer for a specific sales entry, the cash account is credited and the accounts receivable account debited. Before most of todays practicing CPAs were even born, the AICPA issued Statement on Auditing Procedure no. Such analytical procedures to verify existence assertions would be bank reconciliations and cash flow analyses. 13 External confirmation of an account receivable provides strong evidence regarding the existence of the account as at a certain date. As an Internal Audit Test basis checking performed. For manual listings Obtain client's accounts payable listing and. Happiness Express, Inc. Examine and check control accounts Enquire into credit balance Consider the valuation of the account receivables. TOPICS IN REVENUE/RECEIPT Relationship assertions & audit CYCLE procedures Relationship audit risk, client strategies, substantive tests Substantive tests for assertions Revenue recognition, earnings manipulation, & channel stuffing Audit sampling & accounts receivable Computer-assisted audit techniques. Audit Sampling - Application of an AUDIT procedure to less than 100% of the items within an account BALANCE or class of transactions for the purpose of evaluating some characteristic of the balance or class. Viewing 4 posts - 1 through 4 (of 4 total) Author. The Financial Reporting Framework for Small- and Medium-Sized Entities My exclusive presentation of webcasts on CPE Credit. October 28, 2014. Thus, when obtaining evidence for assertions not adequately addressed by confirmations, auditors should consider other audit procedures to complement confirmation procedures or to be used instead of. Refer to Appendix 1 for examples of asserti ons addressed by accounts receivable and bank confirmations. Test subsequent receipt of cash from customers. To determine whether misstatements in cash (existence assertion) and accounts receivable (existence, valuation, and completeness) would be prevented or detected on a timely basis, the auditor decided to test the controls provided by the system in the daily reconciliation of lock box receipts to customer accounts, as well as the control over. Accounts Receivable Audit: When performing audit testing over accounts receivable balances it is important for the auditor to consider the assertions which are at risk and are subject to testing. Use this form to send your wishes for the features you'd like to see in future versions of Jazzit. When auditing the accounts receivable account on the balance sheet, an auditor's procedures most likely would focus primarily on management's assertion of Completeness An auditor selected items for test counts from the client's warehouse during the physical inventory observation. So, in performing your audit procedures, perform procedures to ensure that accounts receivables and revenues are not overstated. Audit Assertions are about: Items appearing in the profit or loss statement, Items appearing in the balance sheet, and. Confirmations generally provide the most reliable evidence for auditors to verify the existence and accuracy of cash balances and accounts receivable balances. Accounts receivable: An audit simulation. Design further audit procedures, based on your risk assessments; Work with confirmations and design them to be more efficient and effective; Design an effective sampling plan; Match the audit procedures typically performed in the accounts receivable area to the stated audit objectives and relevant assertions. Audit assertions, financial statement assertions, or management's assertions, are the claims made by the management of the company on financial statements. THIS ACCOUNTS RECEIVABLE PURCHASING AGREEMENT (“ARPA”) is made this the 17 th day of February, 2011 (“Effective Date”), by and between Probe Manufacturing, Inc. Audit Program for Accounts Receivable and Sales Legal Company Name Client: Balance Sheet Date: Instructions: The auditor should refer to the audit planning documentation to gain an understanding of the financial reporting system and the planned extent of testing for accounts receivable and sales. Assignment is a transfer of right to collect. Financial Services, Accounting Operations manages city-wide accounts receivables with the exception of Vancouver Police Department, Vancouver Public Library and Civic Theatres. An entity’s documentation of it process for testing trade receivables for impairment is one of the key areas most auditors would consider during their audit. • Significant accounts include revenue and accounts receivable • Evidence is obtained for each financial statement assertions • Relevance of assertions varies with accounts and clients • More relevant assertions: • Have risk of material misstatement • Require higher-quality audit evidence. Financial statement assertions. I have found lots of errors and irregularities via review of the bank reconciliation. Hence, the account balance audit objectives shown in Fig. Audit procedures are applied to the accounts receivables balances to test their assertions. For example, when cash is collected from a customer for a specific sales entry, the cash account is credited and the accounts receivable account debited. This is an accounting estimate. If you are familiar with auditing, the auditor needs to perform a risk assessment and satisfy certain assertions with regard to accounts. 11-21 Why is it important to directly test sales transactions as well as accounts receivable? 11-22 How can the audit of revenue provide a good opportunity to test the completeness assertion for both sales and accounts receivable?. ISA 505 External Confirmations:. Waheed Ahmed, Associate, Audit and Assurance Services. 124) that the auditor should use assertions for classes of transactions, account balances, and presentation and disclosures in sufficient detail to form a basis for the assessment of risks of material misstatement and the design and performance of further audit procedures. Some examples of cycles are the RRR (Revenues, Receivables, and Receipts) cycle and the PPP (Purchases, Payables, and Payments) cycle. Accounts receivable represents an account with many transactions and therefore would be expected to require significant audit time. Here’s a refresher on the balance sheet accounts: Assets are resources the company owns; for example, cash, accounts receivable, and property, plant, and equipment (PP&E). Cash receipts and accounts receivable C. Such analytical procedures to verify existence assertions would be bank reconciliations and cash flow analyses. may take the form of pointers, indexes, and embedded keys 2. Payroll- check cheques paid are recorded in payroll system correctly. • Determine what confidentiality. In testing the existence assertion of accounts receivable during the course of the audit year, the internal auditors had sent out confirmations to customers with accounts receivable balances and accounts written off to justify their conclusions in the area. In the audit of large companies with millions of dollars of receivables and hundreds of thousands of individual accounts, the audit process relies on statistical sampling, which usually. Here is a selection of accounts receivable assertions: a. Completeness assertion. Introduction * Assertions About Classes of Transactions and Events Assertions About Account Balances Assertions About Presentation and Disclosure 1. Auditing Accounts Receivable (On-Demand) 2019 Description Typically one of the larger balance sheet accounts, accounts receivable, and its related contra account allowance for doubtful accounts, is an area often assigned to new staff. To verify completeness, valuation and cut-off assertions, auditors send confirmation requests to debtors and third parties. Diff: Easy. Some examples of cycles are the RRR (Revenues, Receivables, and Receipts) cycle and the PPP (Purchases, Payables, and Payments) cycle. Next will cover the audit process for specific accounts like inventory, prepaid expenses, intangible assets, property plant and equipment, long term debt & equity. Learning "how" to audit accounts receivable is mainly learning to "what extent" auditing procedures should be applied. The accounts receivable turnover ratio was far below expected results. Explain the differences among management assertions about classes of transactions and events, management assertions about account balances, and management assertions about presentation and disclosure. • Where overdue receivables have not paid, trace the balances to the provision for doubtful debts. · Completeness. Remember that balance sheet accounts have 4 relevant assertions. 03) require the confirmation of accounts receivable unless the overall account balance is immaterial, the confirmation. According to AU Section 330 from the Public Company Accounting Oversight Board , a confirmation “is the process of obtaining a direct communication from a third party in response to a request for information about a particular item affecting financial. Fore example, there are specific presentation disclosure related audit objectives for accounts receivable and notes payable. MULTIPLE CHOICE: 1. Doubtful accounts. Which audit procedures are usually the most useful for auditing the existence assertion? Confirming a sample of accounts receivable and performing follow-up procedures (pg 283) What analytical procedures might be informative regarding the existence assertion? Comparisons of assets and revenue balances with recent history and comparison of. Which one of verify management's assertions and document audit conclusions. Auditors Are Concerned With Assertions In Creating Their Audit Steps. and no audit recommendations are necessary. Audit Assertions are also known as Management Assertions and Financial Statement Assertions. Accounts Receivable Aging Analysis. At the time you spend the monies for that grant you would then show Grant Revenue and a Grant Accounts Receivable. They then design specific substantive procedures to obtain evidence about each of these assertions. · Rights and obligations. As in other subsystems that comprise the accounting system, the accounts p ayable process depends on a system of internal controls that gu arantees the accuracy of the. Accounts receivable confirmations are likely to be more effective for the existence assertion than for the completeness and valuation assertions. Reviewing the accounts receivable with the credit manager to evaluate their collectability will tell you the amount of receivables NOT. Some examples of cycles are the RRR (Revenues, Receivables, and Receipts) cycle and the PPP (Purchases, Payables, and Payments) cycle. · Completeness. Accounts payable audit program. Accounts receivable (AR) is the balance of money due to a firm for goods or services delivered or used but not yet paid for by customers. Compute the ratio of allowance for uncollectible accounts divided by accounts receivable and compare with previous years. For example, when cash is collected from a customer for a specific sales entry, the cash account is credited and the accounts receivable account debited. Accounts receivable (Comptes débiteurs) – A category of accounts which refers to all amounts owed to Indigenous and Northern Affairs Canada other than those amounts with respect to direct loans, defaulted guaranteed loans and accrued interest receivable on these loans. For example, in general: Existence is a concern when auditing assets. Abnormal Spoilage. In this circumstance, when compared to property, plant and equipment one would normally expect the audit of accounts receivable to require:. The reason being is that as A/R goes up, total assets and total revenue go up. To audit “Cash and Cash equivalents”, you will need to get a clear idea about the bank accounts, types of bank accounts, number of bank accounts, purpose of each bank account, banking. Study Assertion Evidence for Accounts Payable and Accrued Expenses flashcards from Kathy Shelledy's Nova Southeastern University class online, or in Brainscape's iPhone or Android app. Some examples of cycles are the RRR (Revenues, Receivables, and Receipts) cycle and the PPP (Purchases, Payables, and Payments) cycle. Audit program design part ii Essay With the exception of cash sales, every transaction and amount is ultimately included in one of two balance sheet accounts, accounts receivable or allowance for uncollectible accounts. In the audit of accounts receivable, the most important emphasis should be on the. , 'Measure twice, cut once'—can be just as useful in the former, with a few modifications. Reconciling the balances in the Accounts Receivable module with AR accounts in General Ledger is an important step and should be done as part of the month-end closing process. However, the risk of misstatement for each assertion will vary according to the type of account. C) gross accounts receivable less returns and allowances. Decide which bank balances to be confirmed, all of them usually. To provide audit professionals with guidance on the audit of accounts receivable and other receivables. For example, confirmation of accounts receivables provides valid evidence relating to the assertion of existence. All audit work should be documented in attached working papers, with appropriate references noted in the right column below. (Assertions) In planning the audit of a client's financial statements, an auditor identified the following issues that need audit attention. classification. Question: Required Information Audit Objectives For Cash 3 Read The Overview Below And Complete The Activities That Follow. You want to ensure your audit program addresses all relevant assertions for sales and accounts receivable. Common stock ordinarily is confirmed through an independent stock registrar and contains relatively few transactions in comparison to other accounts. Lapping of Accounts Receivable B. Confirmations may provide better evidence about some assertions than others. For example, when cash is collected from a customer for a specific sales entry, the cash account is credited and the accounts receivable account debited. Existence assertion. CHAPTER 11 Accounts Receivable & Cash Balances By David N. Account Form Balance Sheet. Goods billed were not shipped. Some examples of cycles are the RRR (Revenues, Receivables, and Receipts) cycle and the PPP (Purchases, Payables, and Payments) cycle. Checklist for auditing accounts Internal Audit Checklist Financial Management Systems - Payroll. For example, confirmation of balance from a customer is a relevant evidence as regards existence of receivable, but it may not be relevant as regards collectability of the balance due from customer Also, physical observation of inventories is relevant evidence relating to existence, but is not appropriate evidence to. Whether you are an analyst, business person or accounting student, audit the records of a corporation, a business manager, or balance your own checkbook, you will find the VentureLine accounting dictionary of accounting terms of immeasurable assistance. To provide audit professionals with guidance on the audit of accounts receivable and other receivables. Bob Anderson, UCSB Intro & Chapter 11-1CHAPTER 11-1 CHAPTER11 Accounts Receivable, Notes Receivable, and Revenue Bob Anderson, UCSB Intro & Chapter 11-2 TESTING ACCOUNTS RECEIVABLE Management Assertions When auditors test accounts receibable, what management assertion/s are. Auditors translate the five management assertions, existence or occurrence, completeness, rights and obligations, valuation or allocation, and presentation and disclosure into specific objectives when developing an audit program for each account balance to refine general assertions into specific objectives to assess the risk of material. a) Audit tests I would carry out to verify trade accounts receivable at the year end i) Cut off tests I would perform this test to ascertain that the transaction of the trade receivable relates to the period in which the balances are recorded ii) Walk through audit test. (b) The key assertions for trade receivables are completeness, existence, rights and obligations, as well as valuation and allocation. They then design specific substantive procedures to obtain evidence about each. In fact, Ms. Term Tests of Details of Account Balances and Disclosures. The reason being is that as A/R goes up, total assets and total revenue go up. its sufficiency and appropriateness, to support the audit opinion. For example, perform a search for unrecorded liabilities (see below). Presentation and disclosure assertion. Examine and check control accounts Enquire into credit balance Consider the valuation of the account receivables. Note details of accounts or leave blank. Audit Tests for Uncollectible Accounts Major concern is that client covers up a theft by charging off accounts receivable that have actually been collected. The internal control procedures for accounts receivable checklist below acts as a quick reference, and sets out the most commonly encountered techniques. The most common audit procedure related to accounts receivable is. Common stock ordinarily is confirmed through an independent stock registrar and contains relatively few transactions in comparison to other accounts. This is part of the general Accounts Receivable and is disclosed. Audit procedures for receivables AUDIT PLAN: RECEIVABLES Completeness Agree the balance from the individual sales ledger accounts to the aged receivables’ listing and vice versa. But a piece of advice often employed in the latter—i. When accounts receivable are confirmed at an interim date, the auditors need not be concerned with a. In the audit of accounts receivable, the most important emphasis should be on the. The following explains the development of preliminary audit strategies for assertions that are consistent with this example risk matrix. Explain four assertions relevant to accounts payable at year end date? Month End Auditing. So, in performing your audit procedures, perform procedures to ensure that accounts receivables and revenues are not overstated. All sales have been recorded C. (the “Seller”), a Nevada Company, and DSCH CAPITAL PARTNERS, LLC DBA FAR WEST CAPITAL (the "Purchaser"), on the following terms and conditions:. Existence assertion. Next, these considerations are linked to audit assertions and specific audit procedures. Thus, when obtaining evidence for assertions not adequately addressed by confirmations, auditors should consider other audit procedures to complement confirmation procedures or to be used instead of. In the audit of accounts receivable, the most important emphasis should be on the a. Rights and obligations assertion. Term Tests of Details of Account Balances and Disclosures. All audit work should be documented in attached working papers, with appropriate references noted in the right column below. Several accounts were incorrectly aged in the client's aging schedule. Accounts receivable confirmations are not very strong as a secondary source of evidence regarding the completeness assertion. Audit Assertions are a representation by management that is embodied in the financial statements. Do you know Accounts payable audit program? If answer to the above question is No, we have the solution for you. The list referred to in the specific balance-related audit objectives is the list of the accounts receivable from each customer at eh balance sheet date. According to AU Section 330 from the Public Company Accounting Oversight Board , a confirmation “is the process of obtaining a direct communication from a third party in response to a request for information about a particular item affecting financial. Such analytical procedures to verify existence assertions would be bank reconciliations and cash flow analyses. Presentation and disclosure. Management Assertions. Absorption Costing. AUDIT PROCEDURES – RECEIVABLE AND SALES Ștefan Zuca Abstract The overall objective of the audit of accounts receivable and sales is to determine if they are fairly presented in the context of the financial statements as a whole. As in the previous example, the debit to accounts receivable must be posted to the general ledger control account and to the appropriate subsidiary ledger account. ACCOUNTS RECEIVABLE PURCHASING AGREEMENT. Sampling is the application of an audit procedure to less than 100% of the items within an account balance or class of transactions for the purpose of evaluating some characteristic of all the items within the balance or class of transactions. Audit Assertions are the implicit or explicit claims and representations made by the management responsible for the preparation of financial statements regarding the appropriateness of the various elements of financial statements and disclosures. This case helps prepare students for internships and careers in the audit profession by providing them with a realistic simulation of year-end substantive testing of Accounts Receivable. Term Tests of Details of Account Balances and Disclosures. Existence assertion. In the audit of accounts receivable, the most important emphasis should be on the a. Auditing Accounts Receivable | OpenTuition. They then design specific substantive procedures to obtain evidence about each of these assertions. In representing that the financial statements are fairly presented in conformity. Review notes pertaining to questions and comments regarding the audit work performed. AUDIT PROCEDURES – RECEIVABLE AND SALES Ștefan Zuca Abstract The overall objective of the audit of accounts receivable and sales is to determine if they are fairly presented in the context of the financial statements as a whole. The cash balances and accounts receivable balances are asset accounts. Audit Objectives and Procedures for Account Receivable. Which statement is not correct? The audit trail in a computerized environment a. • Substantive tests applicable to assertions about sales, accounts receivable, and cash balances. However, the auditor does not simply design tests with the broad objective to identify material misstatement. About Accounts Receivable. The allowance for doubtful accounts is fairly presented in amount. Understatements of accounts receivable are less likely to be reported to auditors. Accounts payable is one of the most important components in the financial machinery of a business, and the concept of. Some examples of cycles are the RRR (Revenues, Receivables, and Receipts) cycle and the PPP (Purchases, Payables, and Payments) cycle. Here is a selection of accounts receivable assertions: Accounts receivable represent all amounts owed to the client company at the. Automate your audit confirmation process Audit Applications is a secure online system simplifying and improving the accounts receivable confirmation process and accounts payable confirmation process for auditors and accounting firms. Financial statement assertions It is stated in ISA 315 (paragraph A. TOPICS IN REVENUE/RECEIPT Relationship assertions & audit CYCLE procedures Relationship audit risk, client strategies, substantive tests Substantive tests for assertions Revenue recognition, earnings manipulation, & channel stuffing Audit sampling & accounts receivable Computer-assisted audit techniques. Hence, the account balance audit objectives shown in Fig. However, the auditor should determine that the audit procedures selected are suitable for accomplishing the audit objective related to the assertion. completeness. An electronic version of the detailed report was obtained and further analysis helped document a decision to examine more current account receivable balances separately from those past due by 120 or more days. You want to ensure your audit program addresses all relevant assertions for sales and accounts receivable. Homer and Moe, PC are auditing the financial statements of Lyoncraft, Inc. Some examples of cycles are the RRR (Revenues, Receivables, and Receipts) cycle and the PPP (Purchases, Payables, and Payments) cycle. Eight key ratios are calculated off of a few inputs. Identify audit procedures for auditing accounts receivable & revenue Differentiate which standards requires an auditor to have adequate technical training and proficiency to perform the audit Describe where the assertion of existence falls under. It represents the balance owed by customers for products sold or services rendered. acceptable audit risk accepted accounting principles accepted auditing standards account balances accounts payable accounts receivable AICPA amount analytical procedures appropriate assessed control risk audit evidence audit procedures audit program audit report audit risk model auditor auditor's report balance sheet balance-related audit. Auditing procedures should be designed to test the applicable relevant assertions based on the facts and circumstances of a particular audit engagement. ; Presentation and Disclosure - These assertions deal with presentation and disclosure of different accounts in the financial statements. On the face of it, this seems beneficial to the. Jazzit Feature Request and Bug Report. For example, when cash is collected from a customer for a specific sales entry, the cash account is credited and the accounts receivable account debited. Accounts payable is one of the most important components in the financial machinery of a business, and the concept of. CHAPTER 11 Accounts Receivable & Cash Balances By David N. , 'Measure twice, cut once'—can be just as useful in the former, with a few modifications. the risks of material misstatement that the client has recorded in sales and accounts receivable for sales and shipments that are not valid or are recorded at the incorrect amount. Auditing (3102AFE) 4. An electronic version of the detailed report was obtained and further analysis helped document a decision to examine more current account receivable balances separately from those past due by 120 or more days. Second, many forms of theft occur in the accounts payable area. Financial Statement Assertions Outcomes Demonstrating Audit Readiness Existence or Occurrence (E) types of amounts, (1) accounts receivable from other Federal Government accounts (amounts owed for fulfilled orders); and (2) unfilled customer orders from other Federal Government accounts not. Accounts Payable Ledger. They are saying that the $50,000 A/R balance includes all accounts receivable. Failure to record cash from collection of accounts receivables Early (late) recognition of cash receipts CAN BE ANYTHING IN THERE! Bank reconciliation will pick it up That is why I have always viewed the bank rec. Management Assertions. Verification of debtors’ ledger: In the case of the debtors’ ledger, the auditor shall obtain a certificate from the management that all the debts that. For example, when cash is collected from a customer for a specific sales entry, the cash account is credited and the accounts receivable account debited. Objective: LO 16-3. 3) Verification of title documents of fixed assets - Existence - Completeness. These assertions are existence or occurrence, rights and obligations, completeness, valuation or allocation, and presentation and disclosure. Accounts receivable auditing. The allowance for doubtful accounts is fairly presented in amount. An accounts receivable aging report summarizes your receivables on their age - how long they have been outstanding. An auditor most likely would limit substantive audit tests of sales transactions when the risk of material misstatement are assessed as low for the existence and occurrence assertions concerning sales transactions and the auditor has already gathered evidence supporting A. Review results of testing the completeness assertion for assessing control risk; tracing of shipping documents into sales journal and to accounts receivable subsidiary ledger if such testing was not performed as a test of controls. Required a. Presentation and disclosure assertion. In the audit of accounts receivable, the most important emphasis should be on the a. B) gross accounts receivable less bad debt expense. TOPICS IN REVENUE/RECEIPT Relationship assertions & audit CYCLE procedures Relationship audit risk, client strategies, substantive tests Substantive tests for assertions Revenue recognition, earnings manipulation, & channel stuffing Audit sampling & accounts receivable Computer-assisted audit techniques. The cause of much over-auditing on many engagements, the amount of audit work necessary depends on risk of material misstatement (RMM) evaluations at both the financial statement and classification (assertion) levels. There are eight business functions for the sales and collection cycle. Doubtful accounts. Objectives of the Review 1. The auditor is more concerned about the higher risk assertions. Presentation and disclosure assertion. When auditing the accounts receivable account on the balance sheet, an auditor's procedures most likely would focus primarily on management's assertion of Completeness An auditor selected items for test counts from the client's warehouse during the physical inventory observation. Absorption Costing. TOPICS IN REVENUE/RECEIPT Relationship assertions & audit CYCLE procedures Relationship audit risk, client strategies, substantive tests Substantive tests for assertions Revenue recognition, earnings manipulation, & channel stuffing Audit sampling & accounts receivable Computer-assisted audit techniques. Some examples of cycles are the RRR (Revenues, Receivables, and Receipts) cycle and the PPP (Purchases, Payables, and Payments) cycle. This test is performed by Homer and Moe primarily to substantiate which of the following assertions?. The five transaction cycles which relate directly to general cash balances are revenue, expenditure, financing, investing, and personnel services. Management Assertions. This is part of the general Accounts Receivable and is disclosed. Rights and obligations assertion. 03) require the confirmation of accounts receivable unless the overall account balance is immaterial, the confirmation. Such analytical procedures to verify existence assertions would be bank reconciliations and cash flow analyses. So, in performing your audit procedures, perform procedures to ensure that accounts receivables and revenues are not overstated. Assertions are used by the auditors to assess misstatements and to obtain evidence. Completeness is a concern when auditing liabilities. These departments manage their own accounts receivables and bill their customers directly. The first tab – Aging Analysis allows you to evaluate the trend of an accounts receivable aging over a 5 year period. Feature Pane - The Conceptual Framework More Link. When accounts receivable are confirmed at an interim date, the auditors need not be concerned with a. Accounts receivable is part of the "current assets" section on a company's balance sheet. One step is to vouch a sample of debit entries from the accounts receivable subsidiary ledger back to the supporting sales invoices. A common example of a control account is the general ledger account entitled Accounts Receivable. On the face of it, this seems beneficial to the. Here is a selection of accounts receivable assertions: a. Substantive procedures may, in these circumstances, primarily consist of risk assessment procedures, analytical procedures and limited confirmation and sales cutoff procedures. Shipping and receiving activities D. Rights and obligations assertion. 11-21 Why is it important to directly test sales transactions as well as accounts receivable? 11-22 How can the audit of revenue provide a good opportunity to test the completeness assertion for both sales and accounts receivable?. Audit procedures for receivables AUDIT PLAN: RECEIVABLES Completeness Agree the balance from the individual sales ledger accounts to the aged receivables’ listing and vice versa. auditapplications. Some examples of cycles are the RRR (Revenues, Receivables, and Receipts) cycle and the PPP (Purchases, Payables, and Payments) cycle. You are confirming a receivable. Valuation or allocation. In the audit of accounts receivable, the most important emphasis should be on the a. Presentation and disclosure. Auditing and Assurance Services, 14e (Arens) Chapter 3 Audit Reports Learning Objective 3-1. Analyze and evaluate accounts receivable over a 5 year period with this tool. Presentation and disclosure assertion. Financial Statement Assertions Outcomes Demonstrating Audit Readiness Existence or Occurrence (E) types of amounts, (1) accounts receivable from other Federal Government accounts (amounts owed for fulfilled orders); and (2) unfilled customer orders from other Federal Government accounts not. One thing that got a lot of the big box stores in trouble, a number of years ago especially, is that they started having these huge sales, like 6 months no interest, no payments. This case helps prepare students for internships and careers in the audit profession by providing them with a realistic simulation of year-end substantive testing of Accounts Receivable. For manual listings Obtain client's accounts payable listing and. On the face of it, this seems beneficial to the. Financial statement assertions It is stated in ISA 315 (paragraph A. Regardless of how progressive or backward the accounts payable function is at any organization, the one thing they all have in common is invoices. for accounts receivable and sales. evaluate the results of tests of controls for the sales/accounts receivable system. Assertions in the Audit of Financial Statements ArtlessShakhawat. This is primarily for larger account balances, but may include a few random customers having smaller outstanding invoices. Identify audit procedures for auditing accounts receivable & revenue Differentiate which standards requires an auditor to have adequate technical training and proficiency to perform the audit Describe where the assertion of existence falls under. Other Sales and Collection Cycle Considerations Lapping of Accounts Receivable Audit Tests for Uncollectible Accounts A. When you become a member of the Chartered IIA you'll receive support and guidance on every aspect of internal auditing. Opening and closing inventory balances B. Fore example, there are specific presentation disclosure related audit objectives for accounts receivable and notes payable. An auditor reviews aged accounts receivable to assess likelihood of collection to support management's assertion about account balances of valuation and allocation In the audit of accounts payable, an auditor's procedures will most likely focus primarily on management's assertion about account balances of. On the other hand, a review undertaken by an auditor, provides a moderate level of assurance, that the information so reviewed, is free from any material misstatement. The information input into the first tab will automatically update the next tab. This means its accounts receivable is turning over approximately 9 times per year. Existence assertion. You want to ensure your audit program addresses all relevant assertions for sales and accounts receivable. Question: In the audit of accounts receivable, auditors develop specific audit assertions related to the receivables. Tested in conjunction with sales where key assertions are: occurrence, completeness and accuracy. In the audit of large companies with millions of dollars of receivables and hundreds of thousands of individual accounts, the audit process relies on statistical sampling, which usually. Audit Forum provides you accounts payable audit program. Audit of current and non current assets Page 6 of 14 Examined make up of balance. Small businesses hold a wide variety of assets, which make up a large portion of a new company's balance sheet. For example, when cash is collected from a customer for a specific sales entry, the cash account is credited and the accounts receivable account debited. The cause of much over-auditing on many engagements, the amount of audit work necessary depends on risk of material misstatement (RMM) evaluations at both the financial statement and classification (assertion) levels. 13 External confirmation of an account receivable provides strong evidence regarding the existence of the account as at a certain date. Completeness assertion. Auditing Revenue and Related Accounts The overriding objective of this textbook is to build a foundation to analyze cur-rent professional issues and adapt audit approaches to business and economic complexities. ; Classes of Transactions - These assertions are usually used for income statement accounts. Management assertions implied or expressed representations by management about classes of transactions and the related accounts and disclosures in the financial statements. Accounts receivable aging, sometimes called accounts receivable reconciliation, is the process of categorizing all the amounts owed by all your customers, including the length of time the amounts have been outstanding and unpaid. 1) An audit of historical financial statements most commonly includes the: A) balance sheet, statement of retained earnings, and the statement of cash flows. On the surface, this assertion appears to be one of the least troublesome. Accounts receivable is part of the "current assets" section on a company's balance sheet. Accelerated Depreciation Method. Valuation can be supported by the process of aging the current accounts receivable to evaluate the adequacy of the allowance account. Griffith University. The most common procedure applied to obtain appropriate audit evidence to address the existence and/or completeness assertions of accounts receivables and accounts payables is by requesting. Based on the audit work performed, we found the interim reconciliation processes are operating effectively. In each case the credit note journal entries show the debit and credit account together with a brief narrative. Accounts payable is one of the most important components in the financial machinery of a business, and the concept of. For example, suppose a company has an accounts receivable collection period of 40 days. Relevant assertions are those that are most important when an auditor evaluates the appropriateness and reasonableness of a financial statement classification. The five transaction cycles which relate directly to general cash balances are revenue, expenditure, financing, investing, and personnel services. There are various assertions including completeness, accuracy, existence, and cutoff, to name a few. For example, when cash is collected from a customer for a specific sales entry, the cash account is credited and the accounts receivable account debited. Be sure that no subsequent period revenues are recorded in the current fiscal year. The accounts receivable turnover ratio was far below expected results. Audit assertions for accounts receivable; Existence: The accounts receivable that are shown on the balance sheet at the reporting date really exist. Completeness assertion. An auditor reviews aged accounts receivable to assess likelihood of collection to support management's assertion about account balances of valuation and allocation In the audit of accounts payable, an auditor's procedures will most likely focus primarily on management's assertion about account balances of. 16) Explain how management assertions, general balance-related audit objectives, and specific balance-related audit objectives are developed for an account balance such as accounts receivable. Bob Anderson, UCSB Intro & Chapter 11-1CHAPTER 11-1 CHAPTER11 Accounts Receivable, Notes Receivable, and Revenue Bob Anderson, UCSB Intro & Chapter 11-2 TESTING ACCOUNTS RECEIVABLE Management Assertions When auditors test accounts receibable, what management assertion/s are. · Completeness. Rights and obligations assertion. Accounts Receivable Audit: When performing audit testing over accounts receivable balances it is important for the auditor to consider the assertions which are at risk and are subject to testing. The Department, under the direction of the State Comptroller, is responsible for: providing a unified financial accounting and control system for state funds; developing a. Completeness assertion. Audit Assertions are about: Items appearing in the profit or loss statement, Items appearing in the balance sheet, and. Rights and obligations assertion. Create an audit report. For example, suppose a company has an accounts receivable collection period of 40 days. An auditor reviews aged accounts receivable to assess likelihood of collection to support management's assertion about account balances of valuation and allocation In the audit of accounts payable, an auditor's procedures will most likely focus primarily on management's assertion about account balances of. An entity’s documentation of it process for testing trade receivables for impairment is one of the key areas most auditors would consider during their audit. In the audit of accounts receivable, the most important emphasis should be on the. Furthermore, obtaining audit evidence relating to a particu- The Use of Assertions in Obtaining Audit Evidence. In this post, we will cover the following: Primary accounts receivable and revenue assertions; Accounts receivable and revenue walkthrough; Directional risk for accounts receivable and revenues; Primary risks for accounts receivable and revenues; Common accounts receivable and revenue control. Auditing Accounts Receivable (On-Demand) 2019 Description Typically one of the larger balance sheet accounts, accounts receivable, and its related contra account allowance for doubtful accounts, is an area often assigned to new staff. Payroll - ensure PAYE reconciles. Describe an audit program and explain the basic approach to audit program development. 4%) of which were with external parties. Match the total of the aged receivables' listing to the sales ledgers control account. (b) The key assertions for trade receivables are completeness, existence, rights and obligations, as well as valuation and allocation. Clients of the business undergoing an audit confirm assertions made in accounts receivable data. Type of audit procedure: analytical procedure, test of control, substantive test of transactions, or test of detail account balances. the risks of material misstatement that the client has recorded in sales and accounts receivable for sales and shipments that are not valid or are recorded at the incorrect amount. Welcome to the Feature Request and Bug Report Submission Form. Accounts Receivable What to look for Be alert for the following, which may be present when the frauds described already are occurring or have occurred: --unexplained differences noted by customers ontheir A/R confirmations --significant delays between the date the customer states a payment was made and the date payment was recorded as received. Relevance means that the audit procedure should be relevant to assertion. On the face of it, this seems beneficial to the. All sales transactions have been recorded. However, the auditor should determine that the audit procedures selected are suitable for accomplishing the audit objective related to the assertion. Audit program design part ii Essay With the exception of cash sales, every transaction and amount is ultimately included in one of two balance sheet accounts, accounts receivable or allowance for uncollectible accounts. Presentation and disclosure assertion. Auditing Receivable and Revenues — An Overview. 11-21 Why is it important to directly test sales transactions as well as accounts receivable? 11-22 How can the audit of revenue provide a good opportunity to test the completeness assertion for both sales and accounts receivable?. Enough audit procedures are necessarily applied to analyze these assertions. Accounts receivable confirmations are likely to be more effective for the existence assertion than for the completeness and valuation assertions. If you have received an Accounts Receivable invoice from the City of Windsor and would like to make an inquiry, please have your customer number and invoice number available and contact: Specific City contact (if known) for the transaction, City telephone number as shown on the invoice, or; Accounts Receivable Clerk at (519. These assertions are existence or occurrence, rights and obligations, completeness, valuation or allocation, and presentation and disclosure. According to AU Section 330 from the Public Company Accounting Oversight Board , a confirmation “is the process of obtaining a direct communication from a third party in response to a request for information about a particular item affecting financial. About Accounts Receivable. Assertions for this wave include all material reporting entity line items, account balances and financial transactions impacting the Balance Sheet, Statement of Net Cost, and Statement of Changes in Net Position not covered by Waves 2 or 3 (e. Even though accounts receivable confirmations are the primary source of evidence for the existence assertion, much additional audit work. Ability to Pay Principle. For example, perform a search for unrecorded liabilities (see below). Schaeffer, AP Now. Accounts Payable. Presentation and disclosure assertion. Reviewing the accounts receivable with the credit manager to evaluate their collectability will tell you the amount of receivables NOT. In the audit of accounts receivable, auditors develop specific audit assertions related to the receivables. Management Assertions. Rights and obligations assertion. I think you mean an aged Accounts RECEIVABLE report. Do you know Accounts payable audit program? If answer to the above question is No, we have the solution for you. Accounts receivable confirmations are likely to be more effective for the existence assertion than for the completeness and valuation assertions. Existence assertion. You are confirming a receivable. All accounts payable owed as of the balance sheet date are included in the financial statements. Shipping and receiving activities D. is a function of the quality and integrity of the application programs d. SUBSTANTIVE TESTS OF TRANSACTIONS AND BALANCES •Objective is to provide reasonable assurance of validity and propriety of financial report or identify monetary misstatements and thus reduce detection risk of auditor. Clients of the business undergoing an audit confirm assertions made in accounts receivable data. review of appropriate board minute 2. • Determine if you will want to do any field trips during your on-site audit time. To test that accounts receivable exist, the auditor will send letters to a sample of the client's. In the audit of accounts receivable, the most important emphasis should be on the a. Cash receipts and accounts receivable C. Auditors are concerned with assertions in creating their audit steps. Welcome to the Feature Request and Bug Report Submission Form. TOPICS IN REVENUE/RECEIPT Relationship assertions & audit CYCLE procedures Relationship audit risk, client strategies, substantive tests Substantive tests for assertions Revenue recognition, earnings manipulation, & channel stuffing Audit sampling & accounts receivable Computer-assisted audit techniques. Homer and Moe, PC are auditing the financial statements of Lyoncraft, Inc. So you see in the financial statements, accounts receivable recorded $5 million. 2) Physical count of inventory - Valuation - Rights and obligations. Without the documentation and analytical procedures to support financial transactions, the accuracy of the accounts receivable will not be strong and this will greatly overstate or understate each account. In the audit of accounts receivable, the most important emphasis should be on the. The Agency collects billions of dollars in tax revenues each year.