Question 1: List and discuss the THREE factors that may affect the reliability of confirmations of accounts receivable. Three factors that affect the reliability of accounts receivable confirmations are: • The type of confirmation request. • Prior experience on the client or similar engagements. • The intended respondent. The types of confirmations include positive and negative confirmations. Generally, positive confirmations are considered more reliable because the recipient is required to respond to the auditor regardless of whether a misstatement exists or not. Prior experience with the client in terms of confirmation response rates, misstatements identified, and the accuracy of returned confirmations should be considered when assessing the reliability of accounts receivable confirmations. For example, if response rates were low in prior audits, the auditor might consider obtaining evidence using alternative procedures. Finally, the intended respondents to accounts receivable confirmations may vary from individuals with little accounting knowledge to highly qualified accounting personnel in large corporations. The auditor should consider the respondent's competence, knowledge, ability, and objectivity when assessing the reliability of confirmation requests.
Question 2: List the SIX important documents and records that are normally contained in the revenue process. Briefly describe the importance of proper credit approvals for sales? Documents and records that are normally contained in the revenue process: - Customer sales order - Credit approval form - Open-order report - Shipping document - Sales invoice - Sales journal - Customer statement - Accounts receivable subsidiary ledger - Aged trial balance of accounts receivable - Remittance advice - Cash receipts journal - Credit memorandum - Write-off authorization Briefly describe the importance of proper credit approvals for sale? First order:investigating the credit worthiness check should be documented on some type of credit approval form. Second orders: credit limit allocated to each customer. When credit limits are included in the entity’s customer files, the approval forms represent the source documents authorizing the amounts contained in the information system.
Question 3: Outline the FIVE major functions in the revenue process. Briefly describe the main responsibility of credit authorization function and billing function FIVE major functions in the revenue process: - Order entry - Credit Authorization - Shipping - Billing - Cash receipts -Accounts receivable -General ledger Describe the main responsibility of -Credit authorization: The credit authorization function must determine that the customer is able to pay for the goods or services. The credit authorization function must ensure that the credit limit is not exceeded without additional authorization The credit authorization function also has responsibility for monitoring customer payments. The credit function is usually responsible for preparing a report of customer accounts that may require write-off as bad debts. However, the final
- Fall '19