5-30 (Assertions)
1. The allowance for doubtful accounts is fairly presented in amount- Valuation and Allocation Assertion (Compare accounts receivable according to GAAP matching principle)
2. All accounts payable owed as of the balance sheet date are included in the financial statements- Completeness(Do the balances contain all transactions for the period)
3. All purchase returns recorded in the general ledger are valid- Existence/Occurrence(Do the recorded accounts represent valid liabilities at the balance sheet date)
4. There is a risk that purchases made in the last week of the month might be recorded in the following period- Completeness(Do the balances contain all transactions for the period)
5. The client may have
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Creditor monthly statement obtained from client’s files- (2) indirectly from outsiders
3. Vouchers in client’s unpaid voucher file- (4) entirely internal
4. Duplicate sales invoices in filled order file-(4) entirely internal
5. Time tickets filed in payroll department-(4) entirely internal
6. Credit memo in customer’s file-(4) entirely internal
7. Material requisitions filed in storeroom-(4) entirely internal
8. Bank statement in client’s files- (2) indirectly from outsiders
9. Management working papers in making accounting estimates-(4) entirely internal
10. Paid checks returned with bank statement in (1) above-(3) internal but validated externally
11. Letter in customer file from collection agency on collectibility of balance-(2) indirectly from outsiders
12. Memo in customer file from treasurer authorizing the write-off of the account-(4) entirely internal
b. Comment on the reliability of the four sources of documentary evidence.
Audit evidence directly from outsiders are used to determine competence, internal evidence provides evidence but is weighed against effectiveness of internal controls. Physical evidence that an auditor may actually witness like inventory is the highest of reliability. External and internal evidence is moderately reliable and works best when used with supporting documentation. Client communications and letters are the least reliable and should not be taken on its own merit.
7-22 (Understanding the entity
First, we conducted risk-based approach with data analysis techniques-unusual invoice and unusual comments, to identify the unusual items that are in the accounts receivable detailed listing, and tested whether there are invoices outside the expected range of invoice number and “special” comments associated with accounts receivable items. As a result, there were no invoice number out of range, and Invoice 1000919, 1000845, 1001097 are “special” comments associated with accounts receivable.
1. A company’s ending accounts receivable balance and the period’s advertising expense would be found on which financial statements, respectively
According to an article in the CPA Journal, the accounting profession has long contended that an audit conducted in accordance with generally accepted auditing standards (GAAS) provides reasonable assurance that there are no material misstatements contained within financial statements. Suggest at least two (2) alternative methods that auditors can use to provide a more concrete level of assurance to investors. Provide support for your responses with examples of such methods in use.
a. Information available before the financial statements are issued or are available to be issued indicates that it is probable that an asset had been impaired or a liability had been incurred at the date of the financial statements. Date of the financial statements means the end of the most recent accounting period for which financial statements are being presented. It is implicit in this condition that it must be probable that one or more future events
To consider this we need net credit sales and average receivable balance. This ratio indicates average collection period should be consistent with corporate credit policy. An increase suggests a decline in financial health of customers.
Question 3: Describe and show the journal entries illustrating how the company accounts for the transfer of its accounts receivable to financial institutions. Is this accounting treatment reasonable? What are the key assumptions made under this approach? Do you agree with these assumptions?
Financial Statements are very important part when running any type of organization. Looking at the statements it provides a very good view in how to understand an organization financially. The balance sheet has three key points: assets, liabilities, and a net assets. When summing the liabilities and net assets should always sum equally to the total assets. Investors will use this type of information in order to determine an organization’s financial conditions. When using the balance sheets it lets the person have a quick review of what the assets, liabilities, and net assets in were they are distributed within the time fame. A single step income statements uses revenues, expenses, and the net income and using the multi-step income statements provide information on how the operating and the non-operating system work. The community hospital had there up and downs between the year 2012
These are primary line items because of they are either great in amount or great in significance (Referred to as key performance indicators).
Holding the cash receipts book open to overstate the cash balance is a fraudulent, misleading, and an unethical activity. The financial vice president ought to not encourage that behavior and the controller ought to not be constrained to take after those instructions. The periodicity concept of bookkeeping states there should be consistency in closing the books of accounts. The receipts of September 1st or September 2nd cannot be included in adjusting for August 30th. It leads to total errors willfully done to compensate each of the prior errors. Willful errors
Trace items returned to the receiving report, taking note of quantity and date received (S‑4).
When an account receivable is determined to be uncollectable it is no longer qualified as an asset and should be written off. A write off reduced the balance of the customers
2. There’s a considerable risk that an employee will not turn-in the timesheet in a timely manner, and so will not be paid.
d. Trace the date, check number, and amount of outstanding item – Occurrence & Completeness. (AU-C 315.A114 a.i-ii)
The purpose of analyzing subsequent collections because it a way to check and make sure that the existence of the action took place. Also checking subsequent collections allows the auditors to check the adequacy of the allowance for uncollectible accounts. This helps the auditor to better calculate the amount that is uncollectible from customers
* The cash overage is closed to “payable to cashier” account if the overage was the money of the cashier