Kế toán, kiểm toán - Chapter 07: Revenue and collection cycle

Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/IrwinLearning ObjectivesDiscuss inherent risks related to the revenue and collection cycle with a focus on improper revenue recognitionDescribe the revenue and collection cycle, including typical source documents and control procedures.Give examples of tests of controls over customer credit approval, delivery, and accounts receivable accountingGive examples of substantive procedures in the revenue and collection cycle and relate them to assertions about account balances at the end of the period.Describe some common errors and frauds in the revenue and collection cycle, and design some audit and investigation procedures for detecting them.Chapter 07 Revenue and Collection Cycle7-2Overall Audit ApproachINHERENT RISKS:Improper Revenue RecognitionCut-offBill and HoldChannel StuffingReturns and AllowancesCollectibility of Receivables7-3Revenue RecognitionMust be (1) realized or realizable and (2) earned SEC guidance (SAB 104)Persuasive evidence of an arrangement exists,Delivery has occurred or services have been rendered, The seller's price to the buyer is fixed or determinable, and Collectibility is reasonably assured 7-4REVENUE AND COLLECTION CYCLE:Key Control ProceduresSEGPARATION OF DUTIESSeparate functions for recording, authorization, custodyAUTHORIZATION OF TRANSACTIONSWrite-offs EDI transactionsCredit checks prior to approval of salePricingACCESS TO ASSETSShipping department Lock box accountADEQUATE DOCUMENTS AND RECORDSPre-numbered sales orders, shipping documents (bills of lading), sales invoicesRemittance adviceINDEPENDENT CHECKS ON PERFORMANCEA/R subsidiary ledger to general ledgerMonthly statement to customer7-5Audit Evidence in Management Reports and Data FilesPending order master fileCredit check/approval filesPrice list master fileSales detail file (sales journal)Sales analysis reportAccounts receivable aged trial balanceCash receipts listingCustomer Statements7-6Other ControlsNo sales order without customer order.Credit approval.Restricted access to inventory.Restricted access to terminals and invoices.All documentation in order to record sales.Proper dating.Invoices compared to BOLs and orders.Pending order files reviewed.7-7AUDITING ACCOUNTS RECEIVABLETest Accounts Receivable Aged Trial Balance (Exhibit 7.8)Confirm balances.Perform analytical proceduresTest sales cut-off7-8USING CONFIRMATIONS Especially useful for verifying EXISTENCE.Factors likely to affect the reliability of confirmations Previous audit experienceIntended recipient of the confirmationType of information being confirmedThe auditor may confirm entire BALANCES or individual TRANSACTIONS.Type of confirmation being sentTYPES OF CONFIRMATIONSPositive Confirmations small number of accounts are involvedlarge number of errors are anticipatedNegative Confirmations the combined assessed level of inherent and control risk is lowa large number of small balances is involved the auditor has no reason to believe that the recipients of the requests are unlikely to give them consideration.Blank Confirmations should be used if the recipient is likely to return a positive confirmation without verifying the accuracy of the information.7-9CONFIRMATION CONSIDERATIONSResponses to positive and blank confirmations provide more reliable evidence than negative non-responses.Recipients of accounts receivable confirmations might not report understatements.Auditors must have heightened professional skepticism for electronic responses (fax or e-mail).Non-response to Positive/blank confirmation requestsFollow up with second and sometimes third requests.A lower than expected response rate could be indicative of fictitious customer accounts.Alternative procedures. Non-response to negative confirmation requestsOnly limited evidence concerning financial statement assertions.Alternative procedures are not necessary for unreturned negative confirmation requests.Follow-up on all exceptions7-10ALTERNATIVE PROCEDURESVouch subsequent cash collections usually sufficient evidence of existence, valuation.Examine shipping documents Examine client-generated supporting documentation, such as invoices.Depends on internal controlsInspect correspondence files7-11Other Matters Related to ConfirmationThere are three sets of circumstances that could justify the omission of the confirmation of a client's accounts receivable.Not material to the financial statements.If the RISK OF MATERIAL MISSTATEMENT is low, and the assessed level of evidence from analytical procedures and other tests of details is sufficient to reduce audit risk to an acceptably low level, confirmation of accounts receivable may be inefficient.Confirmation of accounts receivable is expected to be ineffective (based on previous years' audit experience).7-12UNCOLLECTIBLE ACCOUNTSInspect customer files for collectibilityRecalculate ALLOWANCE and BAD DEBT EXPENSEVerify reasonableness of ALLOWANCE and BAD DEBT EXPENSEVerify appropriateness of accounts written offVerify attempts to collect receivableVerify authorization is appropriate.7-13ANALYTICAL PROCEDURESSales RevenueComparisons with previous periodsComparisons with industryAllowance for Doubtful Accts, Bad Debt ExpenseBad Debt Expense as a percentage of SalesAllowance for Doubtful Accounts as a percentage of Gross ReceivablesAccounts ReceivableDays Sales in Accounts ReceivableAccounts Receivable Turnover7-14SALES CUTOFF PROCEDURESUsed to verify whether Sales/Revenues recorded in the CORRECT ACCOUNTING PERIOD.Examine SALES INVOICES and SHIPPING DOCUMENTS shortly prior to and after year-end.Examine returns after year-end.7-15