Question

1. The eight accounts receivable balance-related audit objectives are:

1. Accounts receivables in the aged trial balance agree with related master file amounts, and the total added is correct and agrees with the general ledger. (Detail tie-in)

2. Recorded accounts receivables exist. (Existence)

3. 3. Existing accounts receivables are included. (Completeness)

4. Accounts receivables are accurate. (Accuracy)

5. Accounts receivables are correctly classified. (Classification)

6. Cutoff for accounts receivables are correct. (Cutoff)

7. Accounts receivables stated are at realizable value. (Realizable value)

8. The client has rights to accounts receivables. (Rights)

Required

Select any Five (5) out of eight (8) of the above, recommend an audit procedure to test each respective audit objective. 10 marks

Total 25 marks

Answer 1

The below audit procedure can be followed to meet the account receivable audit procedure:

Objective 1: Detail tie in: The auditors will add up the invoices on the accounts receivable aging report mannually again by themself to verify that the total they traced to the general ledger is correct.

Objective 2: existance: As an audit procedure, the auditor can use external conformation technique to substantiate the existanc of receivables. The auditor directly writes to the customer for the balance confirmmation.

Objective 3: cutoff: Match invoices to shipping log and gate outward register. The auditors will match invoice dates to the shipment dates for those items in the shipping log, to see if sales are being recorded in the correct accounting period. This can include an examination of invoices issued after the period being audited, to see if they should have been included in a prior period.

Objective 4: Realizable value: to check the realizable value of the trade receivables as on the balance sheet date, as an audit procedure we can prepare a reconciliation of  the amount recieved from the customers in the subquent month (from bank statement) with the amounts stated as receivable in trade receivable schedule.

Objective 5: Rights: As an audit procedure, we can review below sales related documents to eastablish the clients right to account receivable:

1) Sales contract;

2) compare terms of delivery with the actual delivery (Delivery Schedule, quality of good),

3) Acceptance of goods memo by customer on actual delivery.

4) the subsequent realization of debtors also sustantiate the client's right to account receivables.