Audit Chapter 11

Cash Receipts Process Components

Receiving cash, depositing cash, and recording the receipts

Occurrence Assertion

Recorded events have occurred and pertain to the entity

Completeness Assertion

Validates that all necessary transactions have been recorded

Authorization Assertion

Requires all revenue and cash receipts to have proper approval

Accuracy Assertion

Verifies amounts and data are recorded appropriately

Cutoff Assertion

Ensures transactions are recorded in correct accounting period

Classification Assertion

Verifies transactions are recorded in appropriate accounts

Purpose of Accounts Receivable Confirmation

To verify existence of receivables and detect potential fraud

When can AR confirmation be skipped?

When receivables are immaterial, confirmations would be ineffective, or RMM is low

How should confirmation requests be handled?

Mail outside company facilities and maintain detailed record of requests

What causes most confirmation exceptions?

Timing differences due to delays in recording transactions between client and customer

What are key alternative procedures for no replies?

Examine subsequent cash receipts, shipping documentation, and other client records

What two assertions does AR confirmation test?

Existence and Completeness

What is the accounts receivable confirmation process?

Direct written communication between the client’s customers and the auditor