Your audit client is a large retail chain with its own credit card, with annual sales of about $100 million. On December 31, there were approximately 40,000 open accounts with total receivables of approximately $18.5 million. Very few customer balances exceed $1,000. The company's general office maintains the accounts receivable records. The large volume of transactions processed by the company has necessitated extensive segregation of duties and frequent balancing of data during processing. Accordingly, the company's general and system controls are considered to be very good. A complete record of each customer's account is stored on a relational database and includes the following information:
Description of field contents
Type of account (personal, corporate) Customer account number
Customer name and address Credit limit (code for 8 credit levels)
Status code (Active, inactive, bad debt) Number of transactions this month
Current month's charges Current month's payments
Total Outstanding Balance Aged balance over 30 days
Aged balance over 60 days Aged balance over 90 days
Aged balance over 120 days Year account opened
Year last active Total purchases this year to date
Total returns this year to date Number of months active
Total purchases last year Number of months active last year
Source transactions are store purchase invoices, payments, and adjustments. Daily, all the orders are received and entered into the computer and processed against the customer master file. Each account is updated and automatically analyzed to determine whether the transactions just processed have created a condition that should be brought to the attention of the authorization or collection sections. Exception reports are automatically printed and forwarded to these groups.
The company sends monthly statements to customers on a cyclical basis. About 2,000 statements are mailed each billing day. As the accounts are updated, the day's transactions are accumulated and added to the starting control figure for each cycle. The new control figures are balanced with the sum of all the individual accounts in the cycle (accumulated as each account is processed). In addition, a detailed transaction and cycle control report is prepared, providing an audit trail in customer account number sequence.
Required:
Describe the audit procedures you would perform in your year end audit work of accounts receivable for this company. For each audit test, state the relevant audit assertion(s). Be sure to include different types of tests as necessary (e.g. manual, or using computer assisted audit techniques), and clearly identify those tests that can be completed using CAATs.
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