ECON 1 Lecture Notes - Lecture 5: Purchase Order, Computer File, Accounts Receivable
Document Summary
Directly related accounts: sales, cash, accounts receivable sales discounts, sales returns, allowances for doubtful accounts, bad debt expenses. Indirectly related accounts: warranty expenses, warranty liability, sales commission expense. Find evidence for all five assertions for these two accounts as an auditor. More relevant assertion for revenue: existence (because client tends to overstate) More relevant assertion for accounts receivable: existence and valuation. Inform customer about potential back-ordered items: generate back order (if products are out of stock) If back order is not filled within a specified time, the customer is often given the option of cancelling the order. Audit revenue cycle phases ii, iii and iv of the audit opinion formulation process. Complex transactions make it hard to determine the exact data. Auditor must understand: organizations principal business, earning process and nature of obligations that extend beyond normal shipment of goods.
