Substantive Audit Program – Program – Accounts Receivable and Bad Debts
Assertions:
1.
None of the accounts receivable are fictitious.
2.
No accounts receivable have been omitted from the balance sheet.
3.
The accounts receivable are collectible in the normal course of business.
4.
The accounts receivable are bona fide claims owed the company.
5.
Pledged accounts receivable or accounts receivable used as collateral are disclosed.
6.
Receivables from directors, officers, and affiliates are separately disclosed.
7.
Billings are for the correct amount and uncollectible accounts are promptly identified and provided for.
8.
The allowance for uncollectible accounts is adequate.
Procedures:
Occurrence
1. Confirm accounts receivable, using positive confirmations. 2. Perform alternative procedures for all confirmations not returned on the first or second request. 3. Review accounts receivable trial balance for large and unusual receivables. 4. Trace five accounts from the accounts receivable master file to the aged trail balance.
Existence
1. Compare subsequent remittances credited to accounts with remittance advices or other receipts (i.e. deposit slips and bank statements) and ascertain that payments relate to the account balances.
2. Examine documentation such as sipping documents, copies of sales invoices, customer sales orders, and other re levant correspondence supporting the unpaid portion of the account balances. Coordinate this test with the review of the collectability of overdue accounts. 3. Consider whether it is necessary to ve rify further the existence of the customer.
Completeness
1. Determine how the divisions ensure that all shipments are invoiced. 2. Obtain evidence that the procedure (s) operates as prescribed.
Rights and Obligations
1. Review the minutes of the board of directors meeting for any indication of pledge or factored accounts receivable. 2. Inquire of management whether any receivables are pledge or factored.
Accuracy
1. Test supporting documentation for amounts on the detailed listing to determine that it is mathematically accurate and priced correctly. 2. Determine whether the results of the client’s investigations have been reviewed and approved by a responsible official.
Allocation
1. Perform analytical procedures. For any significant differences noted, investigate the nature and cause of the differences and consider whether additional procedures are needed to test sales cutoff.
2. Compare sales for the last month of the fiscal year to sales for the r est of the year and the first month after year end. 3. Compare monthly sales returns and credit memos for the last few months of the fiscal year to the first few months following year end.
Presentation and Disclosure
1. Trace 10 accounts from the trial balance to accounts on master file . 2. Foot two pages of the trial balance, and total all pages. 3. Receivables are properly classified in the balance sheet between current and noncurrent assets and disclosures are adequate with respect to assigned, pledged, unbilled, discounted and related-party receivables. 4. Trace the balance to the general ledger.
