ASSIGNMENT
6-34 (OBJECTIVE 6-10) The following (1 through 16) are the balance-related and transaction-related audit objectives.
Balance-Related Audit Objectives(1-9) : Transaction-Related Audit Objectives(10-15)
1. Existence
2. Completeness
3. Accuracy
4. Cutoff
5. Detail tie-in
6. Realizable value
7. Classification
8. Rights and obligations
9. Presentation
10. Occurrence
11. Completeness
12. Accuracy
13. Classification
14. Timing
15. Posting and summarization
16. Presentation
Identify the specific audit objective (1 through 16) that each of the following specific audit procedures (a. through l.) satisfies in the audit of sales, accounts receivable, and cash receipts for fiscal year ended December 31, 2019.
a. Examine a sample of electronic sales invoices to determine whether each order has been shipped, as evidenced by a shipping document number.
b. Add all customer balances in the accounts receivable trial balance and agree the amount to the general ledger.
c. For a sample of sales transactions selected from the sales journal, verify that the amount of the transaction has been recorded in the correct customer account in the
accounts receivable subledger.
d. Inquire of the client whether any accounts receivable balances have been pledged as collateral on long-term debt and determine whether all required information is included in the footnote description for long-term debt.
e. For a sample of shipping documents selected from shipping records, trace each shipping document to a transaction recorded in the sales journal.
Required
Required
THE AUDIT PROCESS
f. Discuss with credit department personnel the likelihood of collection of all accounts
as of December 31, 2019, with a balance greater than $100,000 and greater than 90
days old as of year end.
g. Examine sales invoices for the last five sales transactions recorded in the sales journal
in 2019 and examine shipping documents to determine they are recorded in the correct period.
h. For a sample of customer accounts receivable balances at December 31, 2019, examine
subsequent cash receipts in January 2020 to determine whether the customer paid
the balance due.
i. Determine whether risks related to accounts receivable are clearly and adequately
disclosed.
j. Use audit software to total sales in the sales journal for the month of July and trace
postings to the general ledger.
k. Send letters to a sample of accounts receivable customers to verify whether they have
an outstanding balance at December 31, 2019.
l. Determine whether long-term receivables and related party receivables are reported
separately in the financial statements.
6-35 (OBJECTIVE 6-9) As part of the engagement team for the audit of JA Tire Manufacturing
for the year ended December 31, 2019, you are responsible for auditing the sales and col-
lection cycle. Visit the textbook website to download the data file “JATireSales.xls” pro-
vided to your audit firm by the company. The manager has instructed you to read the JA
Tire Manufacturing system description provided on the first tab of the Excel file before
attempting this assignment to familiarize yourself with the sales process and the relevant
worksheets and terminology. This file contains sales transaction information for the
year ended December 31, 2019. You will use this data file to perform the following audit
procedures.
a. Open the data file and review the contents for each of the worksheets (Sales Order,
Bills of Lading, Invoice, Cash Receipts, Customer Master, and Product Master). You
will work with the Invoice, Sales Order, Bill of Lading, and Customer Master work-
sheets for this problem. What columns are included in both the Invoice and Sales
Order worksheets? What columns are different between these two worksheets?
b. One of the audit objectives you are testing is the occurrence audit objective for sales.
Use functions in Excel to determine whether any of the following are present, and if
present, identify which observations:
i. Duplicate invoice numbers in the Invoice worksheet
ii. Duplicate customer purchase order numbers in the Sales Order worksheet
iii. Bills of lading and invoices with repeated sales order numbers in the Bill of Lading
and Invoice worksheet, respectively
iv. Sales orders in the Sales Order worksheet without a customer purchase order, but
that were shipped (as evidenced by a bill of lading in the Bill of Lading worksheet)
v. Invoice numbers in the Invoice worksheet with a voided sales order number in the
Sales Order worksheet
vi. Sales orders in the Sales Order worksheet with a customer number that is not on
the approved customer list
c. Summarize your findings. What is your overall conclusion about the occurrence
audit objective?
