Question

Class Discussion Exercise- Accounts Receivable Audit Objectives and Procedures for Accounts Receivable. In the audit of accounts receivable, auditors develop specific audit assertions related to the receivables. They then design specific substantive procedures to obtain evidence about each of these assertions, Here is a selection of accounts receivable assertions: Accounts receivable represent all amounts owed to the client company at the balance sheet date. b. a. The client company has a legal right to all accounts receivable at the balance sheet date. Accounts receivable are stated at net realizable value. Accounts receivable are properly described and presented in the financial statements. c d. Required: For each of these assertions, select the following audit procedure (numbered 1-7) that is best suited for the audit plan. Select only one procedure for each audit objective. A procedure may be selected once, not at all, or more than once. 1. Analyze the relationship of accounts receivable and sales and compare with relationships for preceding periods 2. Perform sales cutoff tests to obtain assurance that sales transactions and corresponding entries for inventories and cost of goods sold are recorded in the same and proper period. 3. Review the aged trial balance for significant past due accounts. 4. Obtain an understanding of the business purpose of transactions that resulted in accounts receivable balances. 5. Review loan agreements for indications of whether accounts receivable have been factored or pledged. 6. Review the accounts receivable trial balance for amounts due from officers and employees. 7. Analyze unusual relationships between monthly accounts receivable and monthly accounts payable balances (AICPA adapted)

Kindly, provide short answers.

Thank you.

Answer 1

Solution:
1	none
2	a
3	c
4	b;d
5	b
6	d
7	none

Explanation:

Option-a) 2: Performing the cut-off sales test for getting the assurance that the sales transactions and entries corresponding COGS and inventories are recorded in the same and proper period. The motive is to know the amounts owed to the client company at the balance sheet date

Option-b) 4: Possible Option, An understanding of the purpose of business transactions that lead to accounts receivable balances. Motive is that Client Company has a legal right at the balance sheet date to know about all accounts receivable

5: BEST Option, Reviewing the agreements on loan for indications of whether the accounts receivable have been pledged or factored. Thus indicating that the client company has a legal right at the balance sheet date to know about all accounts receivable

Option-c) 3: Reviewing the aged trial balance is important for past due payments. The motive is to determine whether the accounts receivable are stated at net realizable value

Option-d) 6: Best option, reviewing on accounts receivable for amounts due from employees and officers. The objective is to ensure that the accounts receivable are properly presented as well as described in the financial statements