Auditing and Assurance Services, Student Value Edition (16th Edition)
Auditing and Assurance Services, Student Value Edition (16th Edition)
16th Edition
ISBN: 9780134075754
Author: Alvin A. Arens, Randal J. Elder, Mark S. Beasley, Chris E. Hogan
Publisher: PEARSON
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Chapter 16, Problem 1RQ
To determine

Differentiate between test of details of balances, tests of controls and substantive tests of transactions for the sales and collection cycle. Also, determine the effect of tests of controls and substantive test over test of details of balances.

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Explanation of Solution

Difference between test of details of balances, test of control and substantive tests of transactions for sales and collection cycle are as mentioned below:

  • Test of details of balances: are used to identify whether the statements of transaction are valid and correct or not. It is a method of collection of facts and figures that supports the statements. For example: An auditor can use prepaid income liabilities account by examining each of the prepaid income balance.
  • Test of control and substantive test of transaction for the sales and collection cycle: are focused upon verifying whether the internal control of the audit process are working or not and also to test the actuality of the transaction in the financial statements. For example: Inspection of a fixed asset

The test of control and substantive test of transaction results affects the size of the sample, method, timing and units selected for the test of details of balances, as effective internal control will reduce the testing.

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