A major auditor activity is to contact your customers directly and ask them to confirm the amounts of unpaid accounts receivable as of the end of the reporting period they are auditing. This is primarily for larger account balances, but may include a few random customers having smaller outstanding invoices. Review cash receipts. If the auditors are unable to confirm accounts receivable, their backup auditing technique is to verify that customers have paid the invoices, for which they will want to review check copies and trace them through your bank account.
Assess the allowance for doubtful accounts. The auditors will review the process that you follow to derive an allowance for doubtful accounts.
This will include a consistency comparison with the method used in the last year, and a determination of whether the method is appropriate for your business environment. Assess bad debt write-offs. The auditors will compare the proportion of bad debt expense to sales for this year in comparison to prior years, to see if the current expense appears reasonable.
Review credit memos. The auditors will review a selection of the credit memos issued during the audit period to see if they were properly authorized, whether they were issued in the correct period, and whether the circumstances of their issuance may indicate other problems. They may also review credit memos issued after the period being audited, to see if they relate to transactions from within the audit period.
Assess bill and hold sales. If you have situations where you are billing customers for sales despite still retaining the goods on-site known as " bill and hold " , the auditors will examine your supporting documentation to determine whether a sale has actually taken place.
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Explore Documents. Accounts Receivable Audit Program. Uploaded by aliraz Did you find this document useful? Is this content inappropriate? Report this Document. Flag for inappropriate content. Download now. Related titles. Carousel Previous Carousel Next. Jump to Page. Search inside document. Agree a detailed listing of accounts receivable to the summary Obtain a detailed listing of accounts receivable balances aged by customer, if possible and: a trace totals to the comparative summary of accounts receivable balances; b select reconciling items in order to obtain a moderate to low level of assurance that accuracy is achieved and i trace these items to supporting documentation; and ii determine whether the results of the client's investigations have been reviewed and approved by a responsible official; c test, to an extent to obtain a moderate to low level of assurance, the mathematical accuracy of the detailed listing; and d if appropriate, examine support for any significant adjustments made throughout the year in reconciling detailed accounts receivable records with the account s in the general ledger.
Positively confirm selected accounts receivable balances Select customers' account from the detail accounts receivable listing for positive confirmation in order to obtain a moderate to low level of assurance that the aforementioned audit objectives are achieved.
Perform the following: a send positive confirmation requests under our control. Test accounts where there is no confirmation When confirmation is not carried out, or where it is not possible to confirm a selected amount including where confirmation requests are unanswered , select customer accounts from the detail accounts receivable listing for verification and perform the steps outlined below in order to obtain a moderate to low level of assurance that the aforementioned audit objectives are achieved.
Coordinate this test with the review of the collectibility of overdue accounts; and c consider whether it is necessary to verify further the existence of the customer.
This means that supplies or services are rendered to the customer but are not yet paid or partially paid. These amounts when accumulated at the year-end, give a large particular amount that is imported into the financial statements of the company. Accounts receivables is an asset account, the balances of which will be received in the forthcoming periods from the customers. Some amounts in this total are expensed out when the company perceives that they are no longer collectible.
Accounts receivable are recorded in the current assets section of the total assets head of the balance sheet. Account receivables have a debit nature and increase the potential inflows of the organization. Audit procedures are applied to the accounts receivables balances to test their assertions. Testing these assertions includes verifying their existence, rights, and obligations, completeness, accuracy, classification, and presentation.
These assertions may be materially misstated due to fraud or error. It is the responsibility of the auditor to perform unique audit procedures for every assertion and reveal any misstatement if present. However, the extent of applying audit procedures depends on the control systems implemented in the accounts receivables division and how efficiently are those controls practiced to bring about the results. The existence of accounts receivable itself is the high-risk area as the misstatement in this area could be due to fraud or manipulation of sales.
On the other hand, misstatement occurred in the area of valuation usually tends to be an overstatement of net receivables as the client might forget to make sufficient allowance for receivables or they are perhaps not willing to make sufficient allowance as the bigger allowance means the bigger expense, hence the lower profit.
Audit Accounts Receivable Overview Accounts receivable are usually material items on the balance sheet; hence to audit accounts receivable, it is very important to perform proper audit procedures in order to obtain sufficient audit evidence for making appropriate conclusion on receivables. Audit Assertions for Accounts Receivable In the audit of accounts receivable, we usually test the audit assertions included in the table below: Audit assertions for accounts receivable Existence The accounts receivable that are shown on the balance sheet at the reporting date really exist.
Completeness All accounts receivable transactions that should have been recorded have been recorded. Right and obligation The client has the right of controls on the accounts receivable included in the financial statements.
Audit Procedures for Accounts Receivable Existence Existence assertion tests whether the accounts receivable on the balance sheet actually exist. There are two types of confirmation, positive confirmation and negative confirmation, as included in the table below: Two types of confirmation Positive confirmation Positive confirmation is the confirmation sent to customers asking them to sign on the letter and mail back directly to us, auditors.
The letter is needed to be sent back regardless of the amount is correct or not. Negative confirmation Negative confirmation is the confirmation sent to customers asking them to reply and mail directly back to us only when they disagree with the balance stated in the confirmation letter.
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