Question

Jenna is working on the audit of a client’s accounts receivable. During the last few weeks, she has conducted interviews with the accounts receivable manager, the chief financial officer, and staff working in the accounts receivable department. She has overseen the external confirmations of accounts receivable, 30% of which required the recipient to respond whether or not the amount stated was correct. Jenna also inspected subsequent cash receipts from the client’s customers. She vouched a sample of accounts receivable balances back to the underlying invoices, cash receipts and sales returns, and traced a sample of these documents to the accounts receivable ledger.

a. List the audit procedures used by Jenna to gather evidence and comment on the reliability of the evidence.

b. Relate each type of evidence to the relevant accounts receivable assertions.

Answer 1

While doing Trade /Account Receivable Audit , apparently Jenna considered all relevant process . Please see following process / procedure while doing audit of account receivable :

Account receivable always one of the important factor under any company Balance Sheet . movement of Account receivable represents “ working Capital “ position . Companies major performance matrix depends on Account receivable balance . One of the major document is “ debtors Ageing report “ to understand age wise ( days wise) debtors Outstanding position. With help of this ageing report , Auditor insist to provode relevant provision for Non moving debtors , collection etc

Trade receivable report tp general ledger – Auditor will check closing balance with ageing report and check whether the amounts in the account receivable in the General ledger

Invetigate any account receivable with reconciliation

Random vouch invoices listed in receivable report

Revoew and vouch invoice to shipping log – this information help us auditor to understand about revenue recognition

Balance confirmation – reconciliation of unmatched balance – Auditor used to send balance confirmation letter to customer ( on the basis of high/ large account balance )

Review , vouched cash receipts – Auditor used to check subsequent collection or any other adjustment

Assess , review doubtful debt , credit allowance as per new ECL ( Expected credit loss – IFRS 9) standard

Asses and review any doubtful debt write off required or not

Review , vouch all relevant credit note , specially before and after cut off date to ensure that No high volume of transaction has been reversed after year end

Auditor need to review “ Related party Receivable “

Finally auditor needs to do complete Trend analysis of debtors age wise , collection position, subsequent position