Solution

School: Seneca College - Course: MKM 805 - Subject: Accounting

ACCOUNTS RECEIVABLE 1.Develop an audit program for accounts receivable Analyzing customer orders Analyzing account receivables and general ledger Comparing invoices and shipping details Verifies account receivables Verifies cash receipts Verifying credit notes 2.Develop internal controls for accounts receivable Proofread invoices check contract agreements approval on credit before shipment Segregate duties Audit invoice packets. Audit the application of cash receipts 3.Describe the GAAP principles applicable to accounts receivable GAAP principles require companies to account for Bad Debt Expenses by using the Allowance Method. he company's accounts receivable balance must be stated at "net realizable value" (GAAP) requires businesses to estimate the amount of their outstanding A/R that are uncollectible 4.Accounts receivables should be confirmed a)discuss the difference between positive and negative confirmation b)Negative confirmation - Customer is asked to respond only if the amount is incorrect. It is used for small balances when the Risk of material misstatement and the Control risk are lower. It is an implicit evidence and least effective. Positive confirmation - Customer is asked to verify the correctness of amount. It is used for large balances when the Risk of material misstatement and the Control risk are higher. It is an explicit evidence and more effective. Negative and Positive confirmations are used to verify the existence of Accounts receivables. c)Lapping is a fraudulent scheme related to accounts receivables Define lapping and provide an example of how lapping occurs Lapping happens when an employee takes a payment from one client and conceals the crime by utilizing a payment from a different client. A worker embezzles a customer's money. A payment from another customer that was received and credited to the original client's account is used to cover the theft. The shortfall in the second customers account is adjusted using payment received from another customer 5.Describe two benchmarks used to measure collectability of accounts receivables Aging report- state of company accounts Turnover Ratio- How often the team collects accounts PREPAID INSURANCE 1.Describe the internal controls that should be in existence for prepaid insurance Acquisition and recording of insurance. insurance register charge-off of insurance 2.Discuss the Financial statement Assertions that should be considered for prepaid insurance. Cut-Off- Verifying accrued or prepaid expenses are recorded in the correct period Occurrence- Confirming recorded transactions are directly connected to the entities Accuracy- Reviewing internal controls and transactions 3.Develop an audit program for prepaid insurance Perform a risk assessment over prepaid expenses. Assess the internal control structure surrounding prepaid expenses. Perform substantive audit procedures to identify and test prepaid expenses. Understand required financial statement disclosures for prepaid expense 4.Identify internal controls items that should be considered when auditing prepaid insurance Existence and Completeness of documents Rights and Obligations such as beneficiary Valuation such as policy and expenses Classification either as overhead or SG&A expense 5.Discuss the accounting principles to apply when auditing prepaid insurance  Accrual accounting requires expenses to be attributed to the fiscal year and period in which items are acquired or services are done, regardless of when budget or cash is available.  GAAP mandates that expenses that are paid before they are due go on the balance sheet