Week_9_Revenue_audio_3 narrated

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Part 3 of 3 related to the revenue cycle

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Chapter 07 :

Chapter 07 Revenue and Collection Cycle “ What at first was plunder assumed the softer name of revenue. ” Thomas Paine 7- 1

Exhibit 7.7 Assertions and Substantive Procedures in the Revenue and Collection Cycle:

Exhibit 7.7 Assertions and Substantive Procedures in the Revenue and Collection Cycle 7- 2

AUDITING ACCOUNTS RECEIVABLE:

AUDITING ACCOUNTS RECEIVABLE Test Accounts Receivable Aged Trial Balance (Exhibit 7.8) Confirm balances. Perform analytical procedures Test sales cut-off 7- 3

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Exhibit 7.8 Accounts Receivable Aged Trial Balance 7- 4

USING CONFIRMATIONS :

USING CONFIRMATIONS Especially useful for verifying EXISTENCE. Factors likely to affect the reliability of confirmations Previous audit experience Intended recipient of the confirmation Type of information being confirmed The auditor may confirm entire BALANCES or individual TRANSACTIONS. Type of confirmation being sent 7- 5

TYPES OF CONFIRMATIONS:

TYPES OF CONFIRMATIONS Positive Confirmations small number of accounts are involved large number of errors are anticipated Negative Confirmations the combined assessed level of inherent and control risk is low a 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- 6

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Exhibit 7.11 Responses to Positive Confirmations 7- 7

ALTERNATIVE PROCEDURES:

ALTERNATIVE PROCEDURES Vouch subsequent cash collections usually sufficient evidence of existence, valuation. Examine shipping documents Examine client-generated supporting documentation, such as invoices. Depends on internal controls Inspect correspondence files 7- 8

UNCOLLECTIBLE ACCOUNTS:

UNCOLLECTIBLE ACCOUNTS Inspect customer files for collectibility Recalculate ALLOWANCE and BAD DEBT EXPENSE Verify reasonableness of ALLOWANCE and BAD DEBT EXPENSE Verify appropriateness of accounts written off Verify attempts to collect receivable Verify authorization is appropriate. 7- 9

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