Module 10 - Substantive Tests of Receivables and SalesBy: Lalaine De Jesus and Erlie Cabral
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1.Describe the auditor’s objectives for substantive tests of trade accounts and notes receivable and sales transactions.2.Explain the nature of the appropriate audit procedures to accomplish the objective for the audit of trade accounts and notes.3.Understand and prepare audit working papers to document audit procedures for receivables and sales. Learning Objectives:
Audit Objectives and ProceduresMercury is the closest planet to the Sun and the smallest one in the Solar System—it’s only a bit larger than the MoonAssertionsAudit ObjectivesAudit ProceduresI. ExistenceII. Rights and ObligationsA. To determine that receivables exist and represent bona fide obligations owed to the company as of the statement of financial position date.1. Obtain schedule of aged trade accounts receivable and notes receivable schedule and reconcile to ledgers.2. Confirm receivables with debtors.3. Inspect notes on hand.4. Perform analytical procedures to determine whether recorded sales and receivables balances appear reasonable.
Audit Objectives and ProceduresMercury is the closest planet to the Sun and the smallest one in the Solar System—it’s only a bit larger than the MoonAssertionsAudit ObjectivesAudit ProceduresIII. CompletenessB. To determine that all transactions relative to receivables have been recorded in the proper accounting period.5. Test cutoff of sales and sales returns to determine whether receivables are recorded in the proper accounting period.IV. Valuation or AllocationC. To determine that receivables are recorded and presented at proper amounts in accordance with PAS/PFRS.