Receivables

Question 1

How to test completeness?

Answer 1

1. Obtain a breakdown of the trade receivables figure per customer for both the current and prior year and compare the level of receivables. Discuss any obvious omissions or unusual trends with management.
2. Select a sample of GDN issued during the year, and vouch them to the relevant sales invoice. Inspect the relevant revenue and receivables to ensure the invoice has been accurately recorded.
3. Obtain a copy of the aged receivables listing, recast the total to ensure it’s accurate, agree the balance on the aged receivables listing to the nominal ledger and trace through the financial statements.

Question 2

How to test rights and obligations?

Answer 2

1. Review monies received post year end for evidence of the balance owed being paid to the audit client, therefore confirming the balance was due to them.
2. Inspect the responses from the direct confirmation for evidence of the customer’s name and address to verify that the customer has confirmed that the outstanding balance is due to the audit client.
3. For a sample of balances due at the year end, vouch the outstanding balance back to sales invoices and GDN to verify that the goods were delivered and that the amount is due the audit client.

Question 3

How to test accuracy, valuation and allocation?

Answer 3

1. Inspect the aged receivables listing for old and overdue amounts. Discuss the recoverability of these amounts with management and consider whether any write offs or allowances are necessary
2. Compare the receivables collection period ratio for the current and prior year and discuss any significant variations with management
3. Agree monies received post year end from receivables at the year end cash book, therefore confirming that the balance is recoverable
4. Examine credit notes issued post year end and determine whether they relate to pre year end sales and if so whether an allowance should be made against that balance
5. Review the adequacy of the allowance for receivables through discussion with management and review the correspondence from customers

Question 4

How to test existence?

Answer 4

1. For a sample of balances owed at the year end, carry out a direct confirmation of receivables, investigate any balances which do not agree and vouch explanations to supporting documentation
2. Review monies received post year end to confirm that the balance existed at the year end
3. Inspect customer correspondence/ complaints files to identify any concerns over the existence of receivables