Completing the Tests in the Sales and

Collection Cycle:
Accounts Receivable

ATIKAH GALUH WILANDRA

1210534013

2006 Prentice Hall Business Publishing, Auditing 11/e, Arens/Beasley/Elder

16 - 1

Learning Objectives
1.
2.
3.

4.
5.

Describe the methodology for designing tests of

details of balances using the audit risk model.
Design and perform analytical procedures for
accounts in the sales and collection cycle.
Design and perform tests of details of balances
for accounts receivable for each balancerelated audit objective.
Obtain and evaluate accounts receivable
confirmations.
Design audit procedures for the audit of
accounts receivable, using an evidence
planning worksheet as a guide.

2006 Prentice Hall Business Publishing, Auditing 11/e, Arens/Beasley/Elder

16 - 2

Accounts Receivable Balance-Related Audit

Objectives

Detail tie-in

Existence

Accuracy

Classification

Realizable
value

2006 Prentice Hall Business Publishing, Auditing 11/e, Arens/Beasley/Elder

Completeness

Cutoff

Rights

16 - 3

Methodology for Designing Tests

of Details of Balances for A/R
Phase I

Identify client business risks affecting accounts

receivable.
Set tolerable misstatement and assess inherent
risk for accounts receivable.

Assess control risk for sales and collection cycle.

2006 Prentice Hall Business Publishing, Auditing 11/e, Arens/Beasley/Elder

16 - 4

Methodology for Designing Tests

of Details of Balances for A/R
Phase II

Design and perform tests of controls and

substantive tests of transactions for the
sales and collection cycle.

2006 Prentice Hall Business Publishing, Auditing 11/e, Arens/Beasley/Elder

16 - 5

Methodology for Designing Tests

of Details of Balances for A/R
Phase III

Design and perform analytical procedures for

accounts receivable balance.

2006 Prentice Hall Business Publishing, Auditing 11/e, Arens/Beasley/Elder

16 - 6

2006 Prentice Hall Business Publishing, Auditing 11/e, Arens/Beasley/Elder

16 - 7

Methodology for Designing Tests

of Details of Balances for A/R

Design tests of details of accounts receivable

balance to satisfy balance-related audit objectiv
Audit
Sample
procedures size

Items to
select

2006 Prentice Hall Business Publishing, Auditing 11/e, Arens/Beasley/Elder

Timing

16 - 8

Designing Tests of Details of

Balances

Aged Trial Balance

Recorded Accounts Receivable Exist

Existing Accounts Receivable Are Included

Cutoff for Accounts Receivable Is Correct

Accounts Receivable Is Stated at Realizable

Value

The Client Has Rights to Accounts

Receivable

2006 Prentice Hall Business Publishing, Auditing 11/e, Arens/Beasley/Elder

16 - 9

Confirmation of Accounts Receivable

Types of Confirmation:
Positive

confirmation
Blank confirmation form
Invoice confirmation

Negative

confirmation

2006 Prentice Hall Business Publishing, Auditing 11/e, Arens/Beasley/Elder

16 - 10

Analysis of Differences
Payment has already been made
Goods have not been received
The goods have been returned
Clerical errors and disputed accounts

2006 Prentice Hall Business Publishing, Auditing 11/e, Arens/Beasley/Elder

16 - 11

Drawing Conclusions
Reevaluate internal control.
Evaluate the qualitative nature of
misstatements.
Determine whether sufficient evidence
was obtained.

2006 Prentice Hall Business Publishing, Auditing 11/e, Arens/Beasley/Elder

16 - 12

Source of Each Row in the Evidence

Planning Worksheet

Tolerable misstatement
Acceptable audit risk
Inherent risk
Control risk
Substantive tests of transactions results
Analytical procedures
Planned detection risk and planned audit
evidence

2006 Prentice Hall Business Publishing, Auditing 11/e, Arens/Beasley/Elder

16 - 13

2006 Prentice Hall Business Publishing, Auditing 11/e, Arens/Beasley/Elder

16 - 14