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Chapter 11 Slides.pptx
Chapter_11_Slides.pptx
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Chapter 11 Slides.pptx-Chapter 11 Accounts Receiva...
Chapter_11_Slides.pptx-Chapter 11 Accounts Receivable, Notes Receivable,
Chapter 11 Slides.pptx-Chapter 11 A...
Chapter_11_Slides.pptx-Chapter 11 Accounts Receivable, Notes Receivable,
Page 7
11-7
Internal Control over A/R and Revenue
2/2
Control Activities
Prepare sales order
Approve credit
Issue merchandise from stock
Shipment
Billing
Invoice verification
Maintenance of control accounts
Maintenance of customers’ ledgers
Approval of sales returns and allowances
Authorization of write-offs of uncollectible accounts
Monitoring Controls
©McGraw-Hill Education.
Page 8
11-8
Revenue Cycle—Documents
Customer purchasing--Purchase order
Sales--Sales order
Shipping--Bill of lading
Billing—Invoice
Receiving cash receipts--Control listing
Authorizing adjustments to accounts
receivable--Credit memo
©McGraw-Hill Education.
Page 9
11-9
Credit Sales System Flowchart Figure
11.1
©McGraw-Hill Education.
Page 10
11-10
Internal Control over
Notes Receivable
Subdivision of duties
The custodian of notes receivable should not
have access to cash or to the general
accounting records
The acceptance and renewal of notes are
authorized in writing by a responsible official
who does not have custody of notes
The write-off of defaulted notes are approved
in writing by responsible officials and effective
procedures adopted for subsequent follow-up
of such defaulted notes
©McGraw-Hill Education.
Page 11
11-11
Risk Assessment for the Audit
of Receivables
A. Use the understanding of the client
and its environment to consider
inherent risks, including fraud risks,
related to receivables and revenue.
B. Obtain an understanding of internal
control over receivables and revenue.
C. Assess the risks of material
misstatement and design further audit
procedures.
©McGraw-Hill Education.
Page 12
11-12
Details on Understanding
the Client Business
The types of products and services sold.
The classes and categories of the client’s customers.
Whether the business is affected by seasonal or
cyclical demand.
Typical marketing policies for the client and its
industry.
Policies regarding pricing, sales returns, discounts,
extension of credit, and normal delivery and
payment terms.
Compensation arrangements that are based on
recorded revenue.
Typical revenue recognition principles used in the
industry and their methods of application.
©McGraw-Hill Education.
Page 13
11-13
Fraud Risk related to Receivables
and Revenue
Understand controls established by
management to control risks
Determine controls have been
implemented
Response to risks
An overall effect on audit
Alter the design of audit procedures
Performing procedures to address risk of
material misstatement due to management
override of internal control
©McGraw-Hill Education.
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