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anewfoundsin
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Posted: 22 Jul 2011 at 03:35 \| IP Logged

I'm confused on the answer for this Question.

An auditor most likely would limit substantive audit tests of sales
transactions when control risk is assessed as low for the occurrence
assertion concerning sales transactions & the auditor has already
gathered supportng

A) opening & closing inventory balances
B) cash receipts & A/R
C) shipping & receiving activities
D) cutoffs of sales & purchases

------------
And is b. Anyone help explain reasoning behind this? Thanks

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yurtle8
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Posted: 22 Jul 2011 at 04:33 \| IP Logged

Here's my take. When the assessed control risk is low,
reliance on the test of controls is high. In other words,
the auditor will put greater emphasis on the test of
controls results. If more thorough test of controls are
performed, then the need for thorough substantive tests
should be reduced to minimal or to a limited amount.

Now this question refers to sales (revenue) transactions.
What's related to the revenue transaction cycle? A/R and
cash receipts. If the auditor has already gathered
sufficient evidence for A/R & cash receipts, the auditor
would be more inclined to limit substantive test of sales
(revenue) transactions.

Another look is to see what transaction options are
provided in the answers. Inventory is unrelated to
sales, in fact, it's a transaction cycle of itself.
Shipping & receiving are departments in sales &
purchases, respectively. Granted shipping is in sales,
but receiving is unrelated to sales. Cut-off of sales &
purchases is a F/S assertion, not an internal control
function. So B is still your best choice.

Hope that helps a little.

__________________
B - 7/1/11
A - 7/27/11
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OZZMAN
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Posted: 22 Jul 2011 at 08:00 \| IP Logged

The sales transaction cycle ends with

a) the posting of the respective receivable and finally

b) the cancelation of that receivable via cash collection.

If you can verify both, you therefore, can proceed to limit substantive testing.

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killaking
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Posted: 22 Jul 2011 at 21:32 \| IP Logged

here is an easier take B is the only one with both
components in the sales cycle the other are not.

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Texas board

anewfoundsin
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Posted: 26 Jul 2011 at 18:30 \| IP Logged

Makes sense! Don't know what I was thinking lol

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