Question

The auditor for Knowles, Inc. is attempting to determine whether the recorded sales and accounts receivable are supported by valid transactions. Identify the assertions being tested and develop the substantive procedures to be used to satisfy the auditor's objectives.

Answer 1

Assertions for Sales revenue and account receivables :

Following assertions needed to be checked by auditor for Sales revenue and account receivables.

1. Occurance : that a particular sales transaction actually occured on given date and revenue actually generated.

2. Existence : that the receivable amount exists , and will be recieved .

3. Completeness: that the amount recorded as sales and account receivables are complete . sales value and discounts provided are recorded properly and receivables balance show correct balances.

4. Accuracy: that all the amounts of transactions are recorded accurately.

5. Valuation : that the receivable balances are valued correctly at the end of accounting period, providing for any bad debts allowances , if any.

6.Cut off : that the sales revenue and receivables amount are collected before their due date , in a timely manner.

B. Sustantive procedure to check assertions related to Sales and account receivables:

1. Debtors confirmation:

Taking confirmation from debtors for their account balances to check the assertions of existence, occurance, accuracy.

2. sampling and vouching:

Taking samples and check supporting sales invoices and cash receipts vouchers for transactions to check the assertions of existence, occurance, accuracy, and completeness.

3. comparative analysis for past year data:

obtaining historical data of sales and account receivables and comparing with and current year data, and analyse for major differences found ,if any, for any month,

4. checking estimates :

checking account balances of any provision made for Bad debts for long dues, any amount written off , estimations for bad debts etc and comparing with past years estimates to check the assertions of valuation.

5. Aging analysis:

To check if account recevables are collected on time to check the assertion of cut off.

~~~~~~~~~~~~~~~~~~~~~~~