Form AP 15

Index Reference__________
Audit Program for Accounts Receivable and Sales
Legal Company Name Client:

Balance Sheet Date:

Instructions: The auditor should refer to the audit planning documentation to gain
an understanding of the financial reporting system and the planned extent of testing
for accounts receivable and sales. Modification to the auditing procedures listed below
may be necessary in order to achieve the audit objectives. [Note: Transfer of
receivables is not addressed in this audit program, as this type of transaction is not
currently engaged in Mongolia. Modification of this program may be necessary in the
future.
All audit work should be documented in attached working papers, with appropriate
references noted in the right column below.

Audit Objectives

Financial Statement
Assertions

Existence or occurrence
Receivables reflected in the balance sheet exist, are for
Rights and obligations
valid transactions, and include all authentic obligations
Completeness
of third parties to the entity.
Existence or occurrence
Billings are for the correct amount and uncollectible
Valuation or allocation
accounts are promptly identified and provided for. The
allowance for uncollectible accounts is adequate.
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.

Presentation and disclosure

Performed
By
1. Perform the following analytical procedures for accounts
receivable and investigate any significant fluctuations or
deviations from the expected balances:
a. Compare the current years account balances with the
prior years account balances for gross receivables;
allowance for doubtful accounts; bad debts; and sales
returns and allowances.
b. Compare monthly sales by product line for the current
year with monthly sales for the prior year and the first
few months subsequent to year end.
c. Compare monthly sales returns and allowances and
credit memos for the current year with those of the
prior year and the first few months subsequent to year
end.
d. Compare the aging categories (e.g., 0-30 days; 31-60
days, etc.) of the current years accounts receivable
with the prior years and/or industry data.
e. Compute the following ratios for the current year and
compare with the prior years:
(1) Accounts receivable turnover.
(2) Days sales in accounts receivable.
(3) Ratio of allowance for uncollectible accounts to
gross accounts receivable and credit sales.
(4) Ratio of write-offs to credit sales.
(5) Ratio of sales returns and allowances to credit
sales.

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Performed
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(6) Ratio of customer discounts to credit sales.
(7) Ratio of gross profit to credit sales, in total and by
major product or division.
2. Prepare or obtain from the client an aged trial balance of
trade accounts receivable and perform the following:
a. Test the arithmetical accuracy of the aged trial balance
and the aging categories therein.
b. Reconcile the total balance to the general ledger
control account balance.
c. Note and investigate any unusual entries.
d. Summarize the total of credit balances and make
appropriate reclassification entry, if material.
e. On a selective basis, trace individual account balances
in the aged trial balance to individual subsidiary
ledgers and vice versa.
f. Determine which accounts receivable should be
confirmed (for example, all individually significant
items and judgmentally or randomly selected items
from the remaining balance).
3. Select customer accounts from the aged trial balance for
confirmation procedures and perform the following:
a. Arrange for confirmation requests to be signed by the
client and mailed directly by the auditor. Maintain
control over the confirmation process at all times.
b. Trace balances included in individual confirmation
requests to subsidiary accounts.
c. Mail confirmation requests using envelopes with the
auditors return address.

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Performed
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d. If the client requests exemption from confirmation for
any accounts selected by the auditor, obtain and
document satisfactory explanations, and determine
necessity for alternative procedures.
e. Obtain new addresses for confirmation requests
returned by the post office as undeliverable, and resend. If the number of confirmation requests returned
by the post office is high, determine how the client
updates customer information and how statements are
delivered to customers with incorrect addresses.
f. Send second requests for positive confirmations on
which there is no reply and consider registered or
certified mail for second requests.
4. Process the confirmation replies and summarize the results
of confirmation procedures as follows:
a. For positive confirmation requests to which no reply
was received and accounts exempted from
confirmation at the clients request, perform
alternative procedures for those customers by
examining cash receipts subsequent to the
confirmation date. If no cash has been received,
examine sales invoices and corresponding shipping
documents.
b. Indicate the total accounts and balances confirmed
without exceptions, confirmations reconciled, and
non-replies or exempted accounts with alternative
procedures performed.
5. For accounts receivable confirmed on a date other than the
balance-sheet date, prepare or obtain from the client an
analysis of transactions (e.g., cash receipts, sales) between
the confirmation date and the balance-sheet date, and
perform the following:
a. Trace the balance as of the confirmation date to the
aged trial balance.
b. Trace cash received per the analysis to the cash
receipts journal and/or bank statements.

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Performed
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c. Trace sales/revenue amounts per the analysis to the
sales/revenue journal.
d. Determine the reasonableness and propriety of any
other reconciling items.
e. Trace the ending balance per the analysis to the trial
balance as of the balance-sheet date.
f. Scan the accounts receivable and sales activity during
the period from the interim date to the balance-sheet
date and investigate any unusual activity.
6. Determine whether any accounts or notes receivable have
been pledged, assigned, or discounted.
7. Determine whether any accounts or notes receivable are
owed by employees or related parties and, if so, perform
the following:
a. Determine the nature and purpose of the transaction
that resulted in the receivable balance.
b. Determine whether transactions were properly
executed and approved by an official of the company
or the board of directors.
c. Consider obtaining positive confirmation requests of
such balances.
d. Evaluate the collectibility of the balances outstanding.
8. For notes and accounts receivable with maturities greater
than one year, perform the following:
a. Evaluate if the principal and interest payments will be
collected in accordance with their contractual terms.
b. If either interest or principal payments will not be
collected in accordance with their contractual terms,
determine whether an allowance for credit loss has
been computed.

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Performed
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9. Test the adequacy of the allowance for uncollectible
accounts, as follows:
a. Review subsequent cash collections of account
balances.
b. Review accounts written off during the period.
c. Determine if write-offs have been properly authorized
and examine related supporting documentation.
d. Ask the client if there are any collection problems with
accounts receivable currently classified as current
assets. If so, consider whether such accounts should be
reclassified to noncurrent assets. Determine the
clients plans for collection and the probability that
these efforts will be successful.
e. Perform and review ratio analyses for relationships
such as (1) accounts receivable turnover, (2) allowance
for uncollectible accounts to accounts receivable, (3)
allowance for uncollectible accounts to sales, and (4)
accounts written off to sales.
f. Review post-balance-sheet transactions related to
receivables, particularly for discounts taken, credits
allowed, and accounts written off, and determine
whether any adjustments should be made as of the
balance-sheet date.
10. Perform the following sales cutoff procedures and
ascertain that receivables are recorded in the proper
accounting period:
a. From the population of shipping documents, trace the
last few shipments of the year to the sales journal and
determine that they were properly included in accounts
receivable as of the balance-sheet date.
b. From the population of shipping documents, trace the
first few shipments subsequent to year-end to the sales
journal and determine that they were properly
excluded from accounts receivable as of the balance-

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Performed
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sheet date.
c. Using the sales journal, trace the last few sales entries
of the year from the sales journal to the shipping
documents and determine that they were properly
included in accounts receivable as of the balance-sheet
date.
d. Using the sales journal, trace the first few sales entries
subsequent to year-end from the sales journal to the
shipping documents and determine that they were
properly excluded from accounts receivable as of the
balance-sheet date.
11. If the auditor is concerned about the risk of fraud, audit
procedures such as the following should be considered in
addition to the ones listed above:
a. Expand the number of accounts receivable
confirmations and pursue all non-replies and
discrepancies.
b. Confirm amounts written off that appear unusual, such
as write-offs of balances due from continuing
customers.
c. Compare sales price to list price.
d. Ascertain that shipped merchandise actually arrived at
the customers location and that the merchandise was
not shipped to a warehouse or location controlled by
the client.
e. Ascertain that shipping documents and invoices are
pre-numbered sequentially and accounted for.
f. Examine original documents for sales invoices and
shipping documents and be alert for possible
alterations.
g. Telephone customers directly and confirm items such
as: unusual payment terms, sales returns, credit
memos, side agreements, merchandise receipt date, or
other concerns.

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h. Review customer complaints and look for unusual

trends.
j. Look for evidence of salespeople trying to meet or
exceed sales goals in order to achieve quotas or
increase their commissions or bonuses.
k. Agree daily cash receipts detail to the bank statements
and investigate unusual lags.
12. If disclosures about fair value are required, or the entity
chooses to provide voluntary fair value information,
perform the following:
a. Obtain information about the fair values of accounts
receivable and notes receivable and determine that the
valuation principles are being consistently applied
under IAS.
b. Determine that the fair value amounts are supported by
the underlying documentation.
c. Determine that the method of estimation and
significant assumptions used are properly disclosed.
Based on the procedures performed and the results obtained, it is my opinion that the
objectives listed in this audit program have been achieved.
Performed by

Date

Reviewed and approved by

Date

Conclusions:

Comments: