Question

In: Accounting

Respond to the following in a minimum of 175 words: An audit program relates to the...

Respond to the following in a minimum of 175 words:

An audit program relates to the cash, sales and receivables cycles and accounts.

Discuss audit procedures for the audit of accounts receivable.

Solutions

Expert Solution

The auditor should carry out an examination of the relevant records himself about thevalidity, accuracy and recoverability of the trade receivables balances. The extent of such examination would depend on the auditor's evaluation of the efficacy of internal controls.

The auditor should check the agreement of balances as shown in the schedules of tradereceivable with those in the ledger accounts Any differences in this regard should be examined

3. The following are some of the indications of doubtful and uncollectible debts, loans and advances a) The terms of credit have been repeatedly ignored

b) There is stagnation, or lack of healthy turnover, in the account etc

4. While examining the schedules of trade receivables with reference to the trade receivables' ledger accounts, the auditor should pay special attention to the following aspects

a) The auditor should examine whether the age of the debts has been properlydetermined

b) Whether provisions for allowances discounts and doubtful debts should recognise that even though a trade receivable may have confirmed the balance due by him, he may still not pay the same c) Verification of subsequent realizations

5. Bad debts written off or excessive discounts or unusual allowances should be venfied with the relevant correspondence Proper authorization should be inspected.

6. In the case of claims made against insurance companies, shipping companies, railways, etc, the auditor should examine the correspondence or other available evidence to ascertain whether the claims have been acknowledged as debts and there is a reasonable possibility of their being realized

7. The auditor should examine whether bills disco nank have been clearly shown as contingent liability

8. Direct confirmation from debtors:

a) The auditor should obtain direct çocfigtation from the debtors to ascertain whether the balances are genuine, accuratentéd and undisputed, particularly where the internalcontrol system is weak. b) The trade receivables may be requested to confirm the balances either

i) as at the date of the balance sheet, or i) as at any other selected date which is reasonably close to the date of the balancesheet

c) The form of requesting confirmation from the trade receivables may be either i) the positive form of request, wherein the trade receivable is requested to respond whether or not he is in agreement with the balance shown, or

ii) the negative from of request wherein the trade receivable is requested respond

only if he disagrees with the balance shown d) Any discrepancies revealed between the confirmations received and the books of account, and then the entity should be asked to investigate and reconcile thediscrepancies


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