The following misstatements are sometimes found in the sales and collection cycle’s account balances:
1. The accounts receivable trial balance total does not equal the amount in the general ledger.
2. Several accounts receivable in the accounts receivable master file are not included in the aged trial balance.
3. One account receivable in the accounts receivable master file is included on the aged trial balance twice.
4. A shipment made in the subsequent period is recorded as a current period sale.
5. The allowance for uncollectible accounts is inadequate because of the client’s failure to reflect depressed economic conditions in the allowance.
6. Several accounts receivable are in dispute as a result of claims of defective merchandise.
7. The pledging of accounts receivable to the bank for a loan is not disclosed in the financial statements.
8. Goods shipped and included in the current period sales were returned in the subsequent period.
9. Long-term interest-bearing notes receivable from affiliated companies are included in accounts receivable.
Required
a. For each misstatement, identify the balance-related audit objective to which it pertains.
b. For each misstatement, list an internal control that should prevent it.
c. For each misstatement, list one test of details of balances audit procedure that the auditor can use to detect it.