Existence or Occurrence (None of the accounts receivable are fictitious)
Unauthorized sales may • have occurred Unauthorized write-offs • of receivables may have occurred
Substantive Tests of
Gene Genera rali lize zed d Evid Eviden ence ce-G -Gat athe heri ring ng Audi Auditt Procedures
Examine the sales figures and accounts receivable, then match them with source documents (Vouching) •Pick a sample of source documents and trace forward to verify that the transactions related to accounts receivable exist (Tracing) •Computation of sales and accounts receivable amounts and ratio analysis (Analytical Procedures) Send confirmation letter to related customers (Positive and negative confirmation) •
Transactions •
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Account for a sequence of sales invoices Review sales journal and master file for unusual transactions and amounts Trace sales journal entries to supporting documents, including duplicate sales invoice, bill of lading, sales order, and customer order Observe surprise count.
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Completeness (No accounts receivable have been omitted from the balance sheet)
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Goods may have been shipped but not billed to the customer Sales may have been billed to the customer but not shipped Merchandise may have been sold to customers who were bad credit risks
Send confirmation letter to related customers (Confirmation) Examine the accounts receivable figures and shipping notices (Vouching) • Contact the related customers (Verbal Inquiry) • Take a sample of related source documents (e.g. delivery order, shipping notice), then compare it •
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Trace selected shipping documents to the sales journal to ensure that each one is included
PEACH BLOSSOM COLOGNE COMPANY SUBSTANTIVE AUDIT PROGRAM – ACCOUNTS RECEIVABLE AND BAD DEBTS AP-2
to master file (Tracing) Cut-off test (sales register and shipping records) • Take a sample of related source documents (e.g. delivery order, shipping notice), then compare it to master file (Tracing) • Compare sales and accounts receivable figures with prior years (Analytical Procedures) • Check whether there are any goods in consignment • Pledge any collateral goods •
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Rights and Obligations (The accounts receivable are bona fide claims owed the company)
Sales may have been recorded in the wrong accounting period
Valuation or Allocation (The accounts receivable are collectible in the normal course of business)
Sales amounts may have been incorrectly recorded
Presentation and Disclosure (Pledged accounts receivable or accounts receivable used as collateral are disclosed and Receivables from
Sales may have been posted to the wrong account
Perform recalculation of sales transactions on aging receivable (Recalculation) Compare the recalculation result with sales figure (Analytical Procedures) Review of account receivable figures to ensure that they are properly classified (Scanning) Disclose any troublesome collectability
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Compare date of recording of sale in sales journal with duplicate sales invoice and bill of lading
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Foot and cross-foot the sales journal and trace totals to the general ledger
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Trace a sample of sales invoices from sales journal to accounts receivable master file and test for amount, date, and invoice number Trace entries in sales journal to sales invoices Recompute prices on sales invoices
Examine duplicate sales invoice for proper account classification
PEACH BLOSSOM COLOGNE COMPANY SUBSTANTIVE AUDIT PROGRAM – ACCOUNTS RECEIVABLE AND BAD DEBTS AP-2
directors, officers, and affiliates are separately disclosed)
