The main objective of an accounts receivable audit is to determine whether there are adequate controls and procedures to ensure the proper recording of accounts receivable.
The overall objective of the accounts receivable audit is to ensure they are presented fairly in the financial statements. Commonly, we audit the accounts receivable because it is the big item in the Balance Sheet and there are many risks associated with those accounts receivable.
Below are the main risks associated with the accounts receivable:. In addition to the risk on the accounts receivable, the auditor wants also to test if there are any control deficiencies.
The control deficiencies give rise to possible fraud as well as other problems that result in the misstatement of accounts receivable presented in the Balance Sheet. The above problems both on risk and control deficiencies answer the reason why auditors shall need to audit the accounts receivable. In the later section, we will cover the key assertions as well as the audit procedures for the audit of accounts receivable.
As mentioned above, the audit on accounts receivable is very important as it is the key and material item in the financial statements. In order to audit the accounts receivable, it requires to use the combination of analytical procedures and tests of detail or substantive tests.
Typically, we perform the audit of accounts receivable in conjunction with the audit of sales. Thus, in this section, we will take some assertions that we usually test in combination with accounts receivable. Below are the key audit assertions for accounts receivable and we will group these assertions into 3 main types:. In the below section set out the key detail practical audit procedures for accounts receivable.
All those procedures are in response to the assertions as mentioned in the above section. In this procedure, the auditor wants to ensure the existence and completeness of the accounts receivable. ISA — External Confirmation covers the confirmation of accounts receivable. Auditors need to confirm accounts receivables balance by directly contacting customers for unpaid receivables balance at the end of the period.
This procedure is for large account balances but sometimes includes a few random customers. We commonly call it accounts receivable circularization. In this procedure, the purpose is also to ensure the existence as well as the Rights and Obligations of accounts receivable that have been recorded in the accounting book. If there is any discrepancy or there is no response from the account receivable confirmation , the auditor shall need to do a follow-up where necessary. In addition, the auditor may also perform alternative procedures in case there is an exception as a result of the confirmation or in case it is impossible to get the confirmation.
These alternative procedures that auditor can carry out are as follow:. We commonly divide the accounts receivable confirmation into two types; positive and negative confirmation.
Originally sent and one or more copies reserved to the customer. Sales invoice is recorded record sales accounting documents. Credit memo document represents the number of reduction is due from the customer due to return or pocket money.
Usually it takes the same general form sales invoices, but it reduces the customer's accounts receivable balance rather than increasing it. Remittance advice is a document, accompanied by the sales invoice to the customer, it can be returned to pay the seller.
It is used to display the customer name, invoice number and amount of sales invoices, when payment is received. Remittance advice is to allow the use of direct deposit to improve the cash income of control over the managed assets. Monthly statement to customers is a document prepared monthly and sent to the instructions for each client accounts receivable opening balances of customers, each sales amount and date, cash payments, credit memos, and ending balance.
Essentially, this is part of a customer's accounts receivable master file. Tests of controls and substantive tests of transactions related to the allowance for doubtful accounts include the following: 1. Control test client authorization and credit approval. Gather an aged listing of accounts receivable as of year-end. Perform confirmations of accounts receivable. Verify by confirmation or alternative means all accounts selected for confirmation.
Analyze allowance for bad debts. Investigate any material credit balances and reclassify as accounts payable.
Review control account for unusual postings. Review meeting minutes, agreements, and bank confirmation to determine if any accounts or notes have A component can be a financial statement account or a business transaction process. This approach allows the auditor to gather evidence by examining the processing of related transactions through the accounting system from their origin to their ultimate disposition in the accounting journals and ledgers.
Thus, the auditor can examine an accounting transaction from the time it is initiated by the entity until its final recording in the financial statement accounts. Completeness All transactions and events that should have been recorded have been recorded. Authorization All transactions and events Home Page Business and Management. Premium Essay. Show More. Here are some of the accounts receivable audit procedures that they may follow:.
Trace receivable report to general ledger. The auditors will ask for a period-end accounts receivable aging report, from which they trace the grand total to the amount in the accounts receivable account in the general ledger.
If these totals do not match, you may have a journal entry somewhere in the general ledger account that should not be there. Calculate the receivable report total. The auditors will add up the invoices on the accounts receivable aging report to verify that the total they traced to the general ledger is correct.
Investigate reconciling items. If you have journal entries in the accounts receivable account in the general ledger, the auditors will likely want to review the justification for the larger amounts. This means that these journal entries should be fully documented. Test invoices listed in receivable report. The auditors will select some invoices from the accounts receivable aging report and compare them to supporting documentation to see if they were billed in the correct amounts, to the correct customers, and on the correct dates.
Match invoices to shipping log. The auditors will match invoice dates to the shipment dates for those items in the shipping log, to see if sales are being recorded in the correct accounting period. This can include an examination of invoices issued after the period being audited, to see if they should have been included in a prior period. Ensure that they were issued and approved in line with corporate policy and procedures. Verify that the allowance is adequate and has been calculated in line with corporate policy.
Discuss findings with management prior to drafting audit report. Draft final report in conjunction with process owner. Distribute final report as prescribed by internal audit distribution list.
Schedule follow-up as appropriate. Page 5 of 5. Sample Accounts Receivable Questionnaire.
0コメント