Instructions: Explain how the audit of cash and revenues and accounts receivable may be overlapping and how an auditor may approach this area of the audit.
The auditing of cash, revenues, and accounts receivables can at times be overlapping. The auditing of these accounts is overlapping due to the considerations of some areas such as asset custody, authorization, record keeping, and reconciliation. All the transactions and record keeping that business conduct are related accounts receivables, cash, and revenues. The nature of the relationship between these accounts and the transactions makes overlapping in auditing a possibility with the passage of time. The connection in these accounts is always present since whenever a transaction of sales and revenue occurs, and then there is always a change in the cash accounts and accounts receivables. In other instances, whenever a debt is paid, changes will be witnessed in the cash accounts and receivables accounts. In the event that bad debts are written off, changes will only be exhibited in the receivable accounts for completion of the transaction (Saxena, Srinivas, Rai, & Rai, 2010).
Due to the existence of overlapping between these accounts, they pose a significant risk during auditing. In approaching this area of audit of audit, the auditor should first understand the nature of environment of the organization he or she is working on. Understanding the environment will equip the auditor with the knowledge to assess the audit risk in this area of auditing. The auditor should then conduct substantive tests to the cash accounts, revenue, and receivables accounts to detect any material misstatement due to error or fraud (Knechel, 2013). Due to the sensitivity of this area, organizations are required to initiate high level of internal controls to the three accounts in consideration. The auditor should assess the internal control in this area to ensure they are sufficient.
Knechel, W. (2013). Do Auditing Standards Matter?. Current Issues In Auditing, 130422090429005. http://dx.doi.org/10.2308/ciia-50499
Saxena, R., Srinivas, K., Rai, U., & Rai, S. (2010). Auditing. Mumbai [India]: Himalaya Pub. House.