substantive procedures you would perform to audit the accuracy, valuation and presentation assertions for trade receivables

Question 1

General audit procedures

Answer 1

Include specific reference in the management representation letter to the accuracy,
valuation and presentation assertion for the ‘trade receivables’ balance at year end.

Question 2

Inspect material journal entries relating to adjusting journals and that disclosure have
been correctly accounted for.

Answer 2

Inspect the disclosure of accounts receivable and revenue in the financial statements to
ensure it in terms of IFRS 7 and 15

Question 3

Using CAATs/GAS, extract a debtors age analysis (from the debtors database) at 31
Dec 2016

Re-perform the debtors age analysis to ensure it is aged per invoice date in terms of
IFRS 7;

Agree the total thereof to the balance on the debtors control account in the GL
and TB.

Identify accounts that exceed their credit limit and follow up through a
discussion with management.
Test reconciliations between student statements and accounting records

Answer 3

Review the debtors control account for unusual entries (e.g. debits resulting from journal
entries recorded close to the end of the financial year)

Question 4

Obtain a schedule from management detailing the breakdown of accounts receivable
and credit losses and test the castings and calculations of the schedule.

Answer 4

Agree the opening balances to the prior year working papers and closing balances to the
financial statement

Question 5

Analytical review procedures

Perform analytical procedures of the ‘trade receivables’ and the ‘allowance’ such as:

• comparing the balances to that of prior years and budgets,
• considering trends and ratios in comparison with other universities
• Investigate any unexpected findings by enquiry from management, and
  inspect supporting documentation to corroborate their responses

Answer 5

Using CAATs,
* Re-calculate the total value open of invoices and interest recorded to students’
accounts for FY2016,
Reconcile/match credit notes passed to student account

Question 6

Using CAAT’s, extract a list of credit balances on individual debtors accounts at 31
December 2016 and investigate the reasons for these and, if valid, request that they be
included to the accounts payable balance

Answer 6

Using CAAT’s test the accuracy of the debtors balance by selecting a sample of debtors
from the debtors database and:
agree the opening balance to the prior year closing balance;
recalculate the closing balances and agree this to the debtors age analysis

Question 7

Inspect the bank statement for payments made after year end (consider those
indicated in the debtors circularisation).

Answer 7

Discuss the method used for calculating the allowance with those charged with
governance and the CFO, Dr. Brown and:

• assess the reasonability thereof given the history of bad debts/ non-payment and the
  impact of the ‘fees must fall’ protest;
• compare the basis of computing allowances for credit losses applied by other
  universities in SA for 2016 / applied in prior years.
• Inspect supporting documents (minutes of meetings, policy etc.) corroborative
  evidence for using the percentages of the outstanding balances (i.e. 25% of balances
  outstanding from students who passed and 90% of all other debtors), and corroborate
  his response by inspecting supporting documents (minutes of meetings, policy etc.)

Question 8

Consider the competence of the preparer in estimating the allowance by comparing
the allowance made at 31/12/2015 to the amount of bad debts written off after year

Answer 8

Obtain the workings to estimate the allowance for credit losses from Dr. Brown and:

re-perform all calculations in the workings to verify their clerical accuracy;

using CAATS, compute the total balance where the amounts outstanding date back
to before 31 December 2015, and compare to the figure used in the workings of the
allowance;

enquire from Dr Brown whether there is likely to be change / relaxation in university
policy not to release results when the student account has not been settled infull.
* In light of the current recessionary environment of South Africa, the valuation
assertion ito the recoverability of student receivables must be discussed with
management and considered in comparison to other higher education institutions

Question 9

using CAATS, stratify the debtors with outstanding balances in the debtors database
at 31/12/2016 based on the ‘debtor type’ field and compare the total for those
debtors who fall into the categories per point 6 of WP EE200 to the amounts used in
the workings of the allowance.
Verify the integrity of the ‘debtor type’ by –

o inspecting supporting documentation for evidence of external funding or
negotiated extended payment terms;

o inspecting, for a sample of those debtors identified as having no record of default,
their debtors accounts in prior financial years for evidence supporting the
categorisation

Answer 9

For the debtors who do not fall into the categories specified in point 6:

• select a sample of these and compare their results to those in the academic record
  files – to ensure that they have been appropriately classified (if the academic

records are electronic, CAATs could be used to undertake this exercise)

• compare the balances used in the calculations to ensure that they relate
  only to FY2016 transactions (otherwise amounts may be double-counted)

Question 10

Assess the reasonableness of the increase in the allowance for credit losses by
comparing the aging of the debtors analysis at 31 December 2016 to the debtors age
analysis at 31 December 2015.

Answer 10

Inspect the minutes of the executive management / Council meeting to corroborate
the reasonableness of the allowance for credit losses was considered and approved.

Question 11

Compare the cash flow forecast used in the going concern assessment with the
expected cash flows from debtors.