Chapter 11
Accounts
Receivable,
Notes Receivable
and Revenue
McGraw-Hill/Irwin
Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights
reserved.
Sources of Accounts Receivable
Sources
Claims against customers from sale of goods
Loans to officers or employees
Loans to subsidiaries
Claims against various other refunds
Claims for tax refunds
Advances to suppliers
Shown
on balance sheet at net realizable
value
11-2
Sources of Notes Receivable
Sources
Written promises to pay certain amounts at future
dates
Notes for substantial amounts
Installment note or contract can allow seller to hold
lien on goods
Examples:
Sale of industrial machinery, farm equipment
Issuance of capital stock
Loans to officers, employees
11-3
Audit Risk
Audit
risk significant because
Many incidences of fraud have involved
overstatement of receivables and revenue
Revenue recognition may be based on
complex accounting rules
Receivables and revenues are usually subject
to valuation using significant accounting
estimates
11-4
Objectives for the Audit of
Receivables and Revenue
1.
2.
3.
Use the understanding of the client and its
environment to consider inherent risk, including
fraud risks, related to receivables and revenues.
Obtain an understanding of internal control over
receivables and revenues.
Assess the risks of material misstatement and design tests
of controls and substantive procedures that:
a.
b.
c.
d.
e.
f.
Substantiate the existence of receivables and the
occurrence of revenue transactions
Establish the completeness of receivables and revenue
transactions
Verify the cutoff of revenue transactions
Determine that the client has rights to recorded
receivables
Establish the proper valuation of receivables and the
accuracy of revenue transactions
Determine that the presentation and disclosure of
receivables and revenue...