PEACH BLOSSOM COLOGNE COMPANY

SUBSTANTIVE AUDIT PROGRAM ACCOUNTS RECEIVABLE AND BAD DEBTS

Audit Objectives
1 Existence or Occurrence
(None of the accounts
receivable are fictitious)
Potential Risks / Errors
Unauthorized sales may
have occurred
Unauthorized write-offs
of receivables may have
occurred
Generalized Evidence-Gathering Audit
Procedures
Examine the sales figures and
accounts receivable, then match
them with source documents
(Vouching)
Pick a sample of source
documents and trace forward to
verify that the transactions related
to accounts receivable exist
(Tracing)
Computation of sales and
accounts receivable amounts and
ratio analysis (Analytical
Procedures)
Send confirmation letter to
related customers (Positive and
negative confirmation)
AP-2
Substantive Tests of Transactions
Account for a sequence of
sales invoices
Review sales journal and
master file for unusual
transactions and amounts
Trace sales journal entries to
supporting documents,
including duplicate sales
invoice, bill of lading, sales
order, and customer order
Observe surprise count.

2 Completeness (No
accounts receivable have
been omitted from the
balance sheet)
Goods may have been
shipped but not billed to the
customer
Sales may have been billed to
the customer but not shipped
Merchandise may have been
sold to customers who were
bad credit risks
Send confirmation letter to related Trace selected shipping
customers (Confirmation) documents to the sales journal to
Examine the accounts receivable ensure that each one is included
figures and shipping notices
(Vouching)
Contact the related customers
(Verbal Inquiry)
Take a sample of related source
documents (e.g. delivery order,
shipping notice), then compare it
to master file (Tracing)

3 Rights and Obligations
(The accounts receivable
are bona fide claims owed
the company)
4 Valuation or Allocation
(The accounts receivable
are collectible in the
normal course of business)
5 Presentation and
Disclosure (Pledged
accounts receivable or
accounts receivable used
as collateral are disclosed
and Receivables from
directors, officers, and
SUBSTANTIVE AUDIT PROGRAM ACCOUNTS RECEIVABLE AND BAD DEBTS
Sales may have been recorded in
the wrong accounting period
Sales amounts may have been
incorrectly recorded
Sales may have been posted to
the wrong account
PEACH BLOSSOM COLOGNE COMPANY
Cut-off test (sales register and
shipping records)
Take a sample of related source
documents (e.g. delivery order,
shipping notice), then compare it
to master file (Tracing)
Compare sales and accounts
receivable figures with prior years
(Analytical Procedures)
Check whether there are any
goods in consignment
Pledge any collateral goods
Perform recalculation of sales
transactions on aging receivable
(Recalculation)
Compare the recalculation result
with sales figure (Analytical
Procedures)
Review of account receivable
figures to ensure that they are
properly classified (Scanning)
Disclose any troublesome
collectability
AP-2
Compare date of recording
of sale in sales journal with
duplicate sales invoice and
bill of lading
Foot and cross-foot the sales
journal and trace totals to the
general ledger
Trace a sample of sales
invoices from sales journal
to accounts receivable
master file and test for
amount, date, and invoice
number
Trace entries in sales journal
to sales invoices
Recompute prices on sales
invoices
Examine duplicate sales invoice
for proper account classification
 PEACH BLOSSOM COLOGNE COMPANY
SUBSTANTIVE AUDIT PROGRAM ACCOUNTS RECEIVABLE AND BAD DEBTS
AP-2
affiliates are separately
disclosed)