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Debtors audit proceedures

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Mandhlaenkosi Mugara
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12 views

Debtors audit proceedures

Uploaded by

Mandhlaenkosi Mugara
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOC, PDF, TXT or read online on Scribd
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1.

The audit of accounts receivable

1.1 Tests relating to ownership and existence

The main audit procedures are as follows.

 Debtors’ circulisation.
 Examination of balances and post balance sheet date settlements which confirm that
the debt did not exist at the balance sheet date.
 Good credit control procedures over receivables ledger e.g agreement of control
accounts debt recovery procedures.
 Reading correspondence with debtors.

1.2 Tests relating to valuation

Two important audit procedures should also be used.

 Reviewing and testing the calculation of any general allowance for doubtful debts.
 Analytical review procedures: examining income analyses, comparative figures for
sales and receivables, and key ratios (eg, gross profit, quick assets and receivables
collection period).

1.3 Tests relating to presentation

Receivables should be presented at net realisable value ( i.e, net of any allowance for
doubtful debts).

Receivables must be presented “grossed up” (ie, all credit balances are eliminated and
disclosed under payables instead).

Accounts receivable must be disclosed under current assets as a separate “format line”. IAS1,
however requires the total figure of receivables to be analysed in a note between:

 Amounts falling due to be collected within a year , and


 Amounts falling due to be collected after one year.

1.4 Other substantive tests on accounts receivable

The following additional procedures should be considered.

 Examining a sample from the receivables ledger with an “aged” list of balances,
noting the composition of the debt and whether it has been paid after the balance sheet
date.
 Checking casts and agreeing the total with control account balances.
 Verifying “ cut –off” procedures and the allowances for credit notes and / or accrual
for sales invoiced late.
 Vouching bad debt write-offs with suitable authority.
 Reviewing bad debt policy for consistency with previous years.
 Examining a sample of bad debts in light of the allowance in order to determine that
the policy has been complied with.
 Reviewing any significant balances that are in arrears but have not been regarded as
bad debts.
 Investigating any significant credit balances to establish the cause. Note any instances
of missing invoices and draw management’s attention thereto.

1.5 Analytical review

Analytical review identifies overall trends and relationships between sets of figures, in this
case figures in the financial statements.

It is a useful tool for identifying areas where more work is required. Such areas would be
where the trends are fluctuating or relationships are difficult to find .The auditor must review
the relationship between income, trade receivables and other related items by taking account
of the following matters.

 Significant ratios (e.g. gross/sales, current assets/ current liabilities, quick assets/
current liabilities, receivables in terms of a week’s sales).

 Budgets for the year under review and subsequent years –note variances and causes.

 Comparative figures- establish the principal reason for any variations.

 Interim accounts for the succeeding period, noting collection of debts, sales and profit
record, continuance of “going concern” status.

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