Homework Assignment 6 Due June 15 at 1155 pm Question 2 You

Homework Assignment 6 Due June 15 at 11:55 pm Question 2 You are the audit senior on the Victoria Waterworks Ltd. audit. You have collected the following information about the accounts receivable: . The AR turnover ratio was eight times for the current year and twelve times for the prior year. The AR balance has increased from $52,140 in the prior year to $176,983 in the current year In an attempt to boost sales, Victoria Waterworks Ltd. loosened its credit-granting policies during the year and also extended payment terms for its customers . Required: Identify the risks for accounts receivable at Victoria Waterworks Ltd. and the related assertions. Document the audit procedures to address the risks. Question 3 Explain the difference between vouching and tracing.

Solution

1) Loosing credit granting policies is a big issue. It leads to loss to the company by creating bad debts.

To boost the sales, extending payment due period and changing the companies policies is not a good idea.

By this with the increase in sales there will be increase in bad debts which results in loss to the company. As the credit sales increases there will be a risk of loss.

The accounts receivable balance got increased from $52140 to $176,983 from prior year to the current year.

These bad debts will leads to deficit in working capital.
Have to face difficulties in recovering the debts.

As the AR turnover increases from 8 to 12 there will be a increase in stock turnover and it leads to the increase of working capital without receiving payments from the Accounts receivables.

2) Difference between Vouching and tracing:

Vouching is the checking of accuracy of the accounts and bills while coming to the tracing it is the inspection.

Example: In the case of expenses, Vouching is checking the bills are correctly accounted or not, Tracing is inspecting that the exp incurred is related to the organisation or someothers and inspecting that is it necessary to incur that expenditure.