The following misstatements are sometimes found in the salesand collection cycle’s account balances:1. Several cash receipts were posted to the incorrect customer accounts.2. Several accounts receivable in the accounts receivable master file are not includedin the aged trial balance.3. One account receivable in the accounts receivable master file is included on theaged trial balance twice.4. A shipment made in the subsequent period is recorded as a current period sale.5. The allowance for uncollectible accounts is inadequate because of the client’sfailure to reflect depressed economic conditions in the allowance.6. Several accounts receivable are in dispute as a result of claims of defective merchandise.7. The pledging of accounts receivable to the bank for a loan is not disclosed in thefinancial statements.8. Goods were returned for credit on the last day of the fiscal year but the sales returnwas not recorded until the following fiscal year.9. Long-term interest-bearing notes receivable from affiliated companies are includedin accounts receivable.a. For each misstatement, identify the balance-related audit objective to which itpertains.b. For each misstatement, list an internal control that should prevent it.c. For each misstatement, list one test of details of balances audit procedure that theauditor can use to detect it.
The following misstatements are sometimes found in the sales
and collection cycle’s account balances:
1. Several cash receipts were posted to the incorrect customer accounts.
2. Several accounts receivable in the accounts receivable master file are not included
in the aged
3. One account receivable in the accounts receivable master file is included on the
aged trial balance twice.
4. A shipment made in the subsequent period is recorded as a current period sale.
5. The allowance for uncollectible accounts is inadequate because of the client’s
failure to reflect depressed economic conditions in the allowance.
6. Several accounts receivable are in dispute as a result of claims of defective merchandise.
7. The pledging of accounts receivable to the bank for a loan is not disclosed in the
financial statements.
8. Goods were returned for credit on the last day of the fiscal year but the sales return
was not recorded until the following fiscal year.
9. Long-term interest-bearing notes receivable from affiliated companies are included
in accounts receivable.
a. For each misstatement, identify the balance-related audit objective to which it
pertains.
b. For each misstatement, list an internal control that should prevent it.
c. For each misstatement, list one test of details of balances
auditor can use to detect it.
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