In my previous blog, I briefly discussed the impact of risk on the nature of the tests of balances procedures for accounts receivable. The assessed levels of risk of material misstatement at the assertion level also will determine the number (extent) of necessary accounts receivable confirmations from both sampling and non-sampling plans.  Risk determines tolerable misstatement at both the financial statement and assertion levels; tolerable misstatement is the basis for the lower limit of individually significant items.  Following is an example of the calculation process.

Similar to my discussion in a previous blog on cash auditing procedures, learning “how” to audit accounts receivable is mainly learning to “what extent” auditing procedures should be applied.  The amount of audit work necessary depends on risk of material misstatement (RMM) evaluations at both the financial statement and classification (assertion) levels.

Learning “how” to audit cash is mainly learning “when” to audit cash and to “what extent” cash auditing procedures should be applied.  The cause of much over-auditing on many engagements, the amount of audit work necessary depends on risk of material misstatement (RMM) evaluations at both the financial statement and classification (assertion) levels.

According to CPE Link instructor and productivity expert, Laura Stack, "Success will come to those who can accomplish more in less time and consistently perform at their productive best."  

Analytical procedures consist of absolute comparisons of dollar balances with prior years’ account balances, or with budgets, ratio comparisons and trend analysis, and computations based on financial or operational data designed to predict the balance in a general ledger account.  Analytical procedures also extend beyond numerically-based procedures to become a part of an auditor’s thought process.