審計(jì)學(xué)英文教學(xué)課件：Chapter 13 External Confirmation ofAccounts Receivable

1、Chapter 13External Confirmation of Accounts Receivable 1Lecturer 陳丹Lead-in Case: THE MORE THE BETTER? On Susans first audit assignment, she was asked to handle the confirmation of AR of a retailer with a large number of customer accounts. In previous years, Susans firm confirmed these accounts using

2、 negative confirmation. Last year, 200 negative confirmations were sent 1 month before year end. Those that were returned showed only timing differences; none represented a misstatement in the clients books.2Lead-in Case: THE MORE THE BETTER? Before the current years planned confirmation date, Susan

3、 discovered that a new system for sales transactions that includes Internet-based sales had been implemented. The client was having considerable problems getting the system to work properly, and a significant number of misstatements occurred in recording sales during the past few months.3Lead-in Cas

4、e: THE MORE THE BETTER? When Susan took her findings to her supervisor and asked him what to do, he responded, “Just send 300 confirmation requests instead of the usual 200. And be sure you get a good random sample so we can get a good projection of the results.”4Lead-in Case: THE MORE THE BETTER?Is

5、 expanding sample size the correct solution?What else confirmation method other than negative one? What are the objectives of AR confirmation?5Topic ListsTypes of ConfirmationTiming Sample SelectionReceivable Circularization ProceduresFollow-up ProceduresObjectives of Confirmation67Types of Confirma

6、tionPositive ConfirmationNegative ConfirmationTypes of Confirmation8Positive ConfirmationThe customer responds directly to the auditor indicating whether they agree or disagree with the information in the request or provides the requested information.Negative Confirmation (Figure 2)The customer resp

7、onds directly to the auditor only if they disagree with the information in the request.Types of ConfirmationPositive ConfirmationBalance (Figure 1)Blank FormInvoiceSpecial terms or side-agreements for the return of goods9Figure 1 Positive Confirmation 1/2 HILLSBURG HARDWARE CO.Gary, IndianaJanuary 5

8、, 2014Atwater Brothers19 South Main StreetMiddleton Ohio 36947To Whom It May Concern: In connection with an audit of our financial statements, please confirm directly to our auditorsBERGER & ANTHONY, CPAsGary, Indianathe correctness of the balance of your account with us as of December 31, 2013, as

9、shown below. This is not a request for payment; please do not send your remittance to our auditors. Your prompt attention to this request will be appreciated. An envelope is enclosed for your reply.10Erma SwansonErma Swanson, Controller The balance receivable from us of $210,389 as of Dec 31, 2013,

10、is correct except as noted below:DateBy11Figure 1 Positive Confirmation 2/2 Figure 2 Negative ConfirmationPlease examine this statement carefully. If it does NOT agree with your records, please report any exceptions directly to our auditorsBERGER & ANTHONY, CPAsGary, IndianaWho are conducting an aud

11、it of our financial statements as of Dec 31, 2013. addressed envelop is enclosed for your convenience in replying.Do not send your remittance to our auditors.12Which Type of Confirmation to Use?PositiveAuditor can perform follow-up procedures if a response is not received from customer.More reliable

12、NegativeFailure to reply is regarded as a correct response. No follow-up procedures.Less expensive13VSWhich Type of Confirmation to Use?14The negative method shall not be used unless ALL of the following are present:The risk of material misstatement has been assessed low.TOC shows IC is effective.Th

13、e population consists of a large number of small, homogeneous account balance.A very low exception rate is excepted.The auditor is not aware of circumstances or conditions that would cause customers to disregard the requests.Timing15Circularization at year endCircularization other than at year endTi

14、ming : Circularization Other Than at Year End161/111/31Y/EIC are adequate and can provide reasonable assurance that sales, cash receipts are probably recorded between the confirmation date and the year end.Timing : Circularization Other Than at Year End171/111/31Y/E+-The auditor prepares a rollforwa

15、rd schedule that reconciles the AR balance at the confirmation date to AR at the year end.Sample SelectionFigure 3 Aged Receivables Report for Seeley Co. Number of ReceivablesRange of debtTotal debtCurrent1 to 2 months oldMore than 2 months old15Less than $0(87,253)(87,253)197$0 to $20,0002,167,7625

16、48,894643,523975,345153$20,001 to 50,0005,508,0772,044,2532,735,073728,75123$50,001 or more1,495,498750,235672,75072,5133889,084,0843,256,1294,051,3461,776,60918which particular categories of receivables might be chosen for the sample?Sample SelectionThe following classes of account should receive s

17、pecial attention:Old, unpaid accountsAccounts with credit balancesAccounts with nil balancesAccounts settled by round sum paymentsAccounts written-off during the period under reviewAccounts which have been paid by the circularization date.19Receivable Circularization ProceduresObtain the AR aged tri

18、al balance (Figure 4) and then foot and cross foot it . Agree the balances with AR master file and control account to verify the population to be tested is complete. Determine an appropriate sampling method and a sample size.Select the balances to be tested, with specific attention to some categorie

19、s of AR, such as old ,unpaid accounts.20Receivable Circularization ProceduresExtract details of each receivable selected from the ledger and prepare circularisation letters.Ask responsible official of the client to sign the letters.Post or fax the letters to the individual customers.21HILLSBURG HARD

20、WARE CO.Accounts ReceivableAged Trial Balance12/31/13Aging, Based on Invoice DateAccount No.CustomerBalance12/31/140-30 days31-60 days61-90 days91-120 daysOver 120 days01011Adams Supply 146,58990,22056,36901044Argonaut, Inc.30,84230,84201191Beekman Bearings83,52673,52610,00001270Brown and Phillips60

21、,00060,00001301Christopher Plumbing15,78915,78909733Travelers Equipment 59,57659,57609742Underhill Maintenance179,263179,26309810UJW Co.102,21134,91134,70032,60009907Zephyr Plastics286,300186,000100,300$20,196,800$14,217,156$2,869,366$1,408,642$1,038,926$662,71022Schedule B-1 DatePrepared by Client

22、DED 1/10/14Approved by SB 1/18/14Figure 4Follow-up ProceduresIf the customer fails to respond to a positive confirmation request or if the response shows a difference between the information contained in the clients records and information provided by the customer, what shall the auditor do?23Send s

23、econd and even third requests for confirmationsAlternative proceduresFollow-up Procedures on Nonresponses24Examine remittance advices, entries in the cash receipts journal, subsequent credits entries in the AR master file and bank statement for evidence of subsequent cash receipts.Select a sample of

24、 debit entries in AR master file and vouch to duplicate sales invoices and shipping documents.Review correspondence with customers to uncover disputed and questionable receivables.25Alternative proceduresFollow-up Procedures on NonresponsesFollow-up Procedures for ExceptionsReasons for ExceptionsPro

25、ceduresGoods in transit or Cash in transit (timing difference)Reconcile the differencesNet-off balances owed and owing Make inquiry of mgt to ensure this is allowed.Dispute between the client and the customerInvestigate the reasons for the disputeCut-off problems (Misstatements)Extend cut-off testsC

26、lassification errors (Misstatements)Take a sample of sales invoice and examine for proper classification into AR master fileLapping (i.e. Teeming and lading) (Fraud)Test prompt posting of cash receipts26Receivables ConfirmationExistence?Completeness?Valuations and allocations? Rights and obligations

27、?27What procedures other than confirmation could be applied to achieve the four objectives for receivables?28Procedures to Confirm Completeness and Existence of ReceivableDirectional Testing29Procedures to Confirm Rights and Obligations of Receivable The auditor shall review bank confirmation; make

28、inquires of mgt, review debt contracts and review board minutes to uncover instances in which the client has limited rights to receivable (a portion of AR may have been pledged as collateral, assigned to someone else, factored or sold at discount) 30Procedures to Confirm Valuation and Allocation of

29、Receivable Prepare an analysis schedule of allowance for uncollectable accounts to verify adequacy of allowance. (Figure 5) 31Hillsburg Hardware Co.Analysis of Allowance for Uncollectible AccountsFigure 5 12/31/13A/R CategoryA/R Balance 12/31/13Estimated Allowance PercentageEstimated Required Allowa

30、nce0-30 days$ 14,217,1563%$ 426,51531-60 days2,869,3666%172,16261-90 days1,408,64215%211,29691-120 days1,038,92625%259,732Over 120 days662,71040%265,084Total$ 20,196,800$ 1,344,789Recorded Allowance$ 1,240,000TBDifference$ 94,789 Traced to aged A/R trial balance. Allowance percentages are consistent

31、 with prior year, and appear reasonable based on historical loss percentages documented in permanent file.TB Agreed to trial balance.Conclusion: Recorded allowance appears understated based on aging analysis. Approximate amount of $95,000 not considered material. Include on Summary of possible Misstatement Schedule on A-3.32Schedule B-4 DatePrepared by TW 1/8/14Approved by SB 1/10/14Analytical Procedures for ReceivablesCompare receivables turnover and receiv