QUESTION List five analytical procedures for the sales and collections cycle. For each test, describe a...

QUESTION
List five analytical procedures for the sales and collections cycle. For each test, describe a misstatement that could be identified.

Expert Solution

Below listed are five analytical procedures for the sales and collections cycle and their potential misstatements.

a. Comparing the Bad debt ratio with the previous year- There can be a possible misstatement in the calculation of Bad debt. Bad debts can be overstated or understated, both can lead to a misstatement.

b. Comparing the Sales return and allowances with previous year- There is a possibility of misstatement in the sales return and also their reason. Sometimes it might also happen that the items are not shipped to the customers and marked as return . There has be a control.

c.Comparing the accounts receivable turnover ratios with that of the previous years- The balances might not be taken properly . Possibility of missatement in receiveable.

d. Comparison by gross profit percentage either by product line or by geographical location- There can be a problem in recording of sales thereby a missatement in arriving at gross profit. The problem can also arise because of error for arrivivng at purchase value.

e. Comparing Aging analysis- The receiveable might not have been properly collected or accounted.

ekkarill92 answered 2 years ago

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