-

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TOD TOC AND ANALYTIC FOR EACH ASSERTION

- SOAPSPAM =financial statement assertions

- Organizational control: written procedures/ authority of approving new customers/
procedures to be adopted for checking customers/ authority to write off debts
- Segregation of duties: separation of staff responsible for posting invoices and
maintaining customer accounts from those responsible for receipts from customers
- Physical controls: pre-number …
- Authorization: authorization for customer credit limit/ for changes in customer data/
authorization to implement credit control procedures
- Arithmetic and accounting checks: correct prices credited/ VAT correctly calculated/
check invoices for prices and calculations/ production of aged receivables reports and
credit control procedure
- Reconciliation of receivables ledger control account with receivables ledger balances /
analytical review of receivables ledger and profit margins
…………
- Check new accounts and credit limits are properly authorized
- Check orders only be accepted from customers with credit limits
- Check cut off procedure at period end
- Check receivables ledger control account reconciliation
- Check remittances from customers are credited in full to the correct account in
receivables ledger
- Check aged receivables analysis and evidence of credit control procedures such as
follow up of overdue debts
- Check explanations for contra and journals entries in receivables ledgers
…………….
- All goods and services despatched are invoiced
- Invoices are raised for the correct prices
- All discounts are authorized
- Goods on credit are only despatched to approve credit worthy customers
- All invoices for sales are properly recorded in the books
- > amounts received from the customers are properly recorded and the persons
responsible for dealing with these are separate from those responsible for processing
sales transactions > SOAPSPAM
- Outstandin balances are reviewed and possible bad debt pursued
- All balances written off are authorized
……….
Compliance tests:
- Only bona fide sales bring receivables into being
- All such sales are to approved customers
- All such sales are recorded
 - Once recorded the debts are only eliminated by receipt of cash or on the authority of a
responsible official
- Debts are collected promptly
- Balances are regularly reviewed and aged, a proper system for follow up exists and if
necessary adequate provision for bad and doubtful debt is made
…………..
Substantive tests:
- Obtain an aged schedule of receivables and agree the total to the control account. Note
that with computerized accounting systems the balances will undoubtedly agree
- Test a sample of balances on ledger accounts to the schedule and vise versa where this
has not been produced directly from the sales ledger system
- Examine the make up of balances> they should bo composed of specific items
- Ensure each account is settled from time to time
- Enquire into the reason any credit balances > may result to omitted sales
- Consider the valuation of receivables: ( a consideration of the adequacy of the provision
for bad and doubtful debt)
- > the adequacy of the system of internal control relating to the approval of credit and
following up poor payers
- The period of credit allowed and taken
- Whether the balances have been setteled after the year end
- Whether an account is within the maximum credit approved
- Reports on major receivables from collectors, trade associations etc
- Present value and reliability of any security lodged as collateral
- The state of legal proceedings and the legal status of the debtor ( in liquidation or
bankruptcy)
- TRADE RECEIVABLE TURNOVER RATIO
………………
Analytical review
- Ratios
- > receivables delay
- >> compared with previous periods > any fluctuations in the ratio could indicate
changes of credit control procedures or in extreme caeses where the ratio has increased
dramatically fictitious sales which ofcourse will never be paid
- > comparison with budget of prior years
- Compre the aged receivables bands (number of days) with prior years to identify
increased receivables ageing
- …
- Debts which are considered irrecoverable should be written off to the statement of
comprehensive income
- Specific provisions for doubtful debts should be set up against debts which are
considered doubtful
- If provisions for doubtful debt is rounded> ensure they are justified by statistical
evidence> unacceptable as it may be a way of hiding profits with “ fictitious” provisions
……….
 - Sales ledger is recording the receivables correctly
- Receivables circularization > ask customer to reply to wether they agree the balance or
not
- >> if the client refuses permission for the auditor to carry the circulation out
- > they should enquire why the permission was denied and evaluate the implications of
the refusal on the risk of material misstatement estimate and carry out alternative
verification procedures as necessary

-
…………….
- Risks:
- The accounts receivable listing or individual balances may be inaccurate
- Accounts receivable balances may not exist
- Account receivable may not be collectible
- Bad debts written offs may not be valid
- Sales transactions may be processed in the wrong period
………
Steps:
- Agree a detailed listing of accounts receivable to the summary
- > obtain a detailed listing of accounts receivable balances (aged if possible)
- >> a. Trace totals to the comparative summary of accounts receivable balances
- >>b. Select reconciling items in order to obtain a moderate to low level of assurance that
accuracy is achieved and (1. Trace these items to supporting documentation and 2.
Determine whether the results of the clients investigation have been reveiwed and
approved by a responsible officer)
- >>c. Test, to an extent to obtain a moderate to level of assurance, the mathematical
accuracy of the detailed listing
- >>d. If appropriate, examine support any significant adjustments made throughout the
year in reconciling detailed accounts receivable records with the accounts in the general
ledger
-
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- Audit risks of exchange rates??????
- IAS -21 EFFECTS OF CHANGE IN FOREIGN EXCHANGE
- Single company:
- - Initial Measurement : at Spot rate/Historical rate
- - Subsequent Measurement :
- 1 Monetary Asset/Liability <A/P, A/R> : Retranslate at the Y/E rate <Gain loss PnL>
- 2 Non-Monetary <Inventory, Machinery>: No Retranslation <Gain loss to PnL>
- Group:
- - Retranslate B/S items at closing rate
- - Retranslate I/S items at Average rate
- - All retranslation gain and losses from retranslation will be taken to equity.
- Disclosures
- - Check that foreign currency transactions are recorded at the historical rate on initial
 -recognition (and in the statement of profit or loss)
-- Check that monetary items included in the statement of financial position at the
yearend
- are translated at the closing rate of exchange
- - Check that non-monetary items are translated at the historical rate of exchange
- - Consolidation done with translation?
- - Correct translation according to head of account (B/S account or I/S account)
- - All retranslation gain/loss credited/charged to OCI?
- - Have all necessary disclosures made?
………..
- Inherent / detection/ control risks???
- Business risk assessment> for assertions> should have processes carried out to
understand the inherent risks > eg. political/legal/economical/social
- inherent>
- >> consider:
- >(do i have enough controls to ensure and stop) how easily it is to defraud the business
- > how complex are the underlying transactions
- > the degree of judgement involved in agreeing variables
- > etc.
- control>
- There is a process flaw, error, missstamaemtn, and internal controls are failing to detect
and correct
- >> consider:
- > extent of supervisory controls
- detection> auditor fail to detect and fix things
- > will have to increasetests if the other are high
- …..
- Analytical procedure:
- Compare info with prior periods
- Compare info with budgets and anticipated results
- …….
- Procedure:
- > inquire (ask qs)
- > inspect (vouching..)
- > observation (determine if procedure set are being followed)
- > confirmation (internal or external> )
- > computations ( check calculations)
- > analytical (evaluate )
- ……..
- Some vertification methods:
- > control account reconciliation
- >sales audit review
- > balance check to sales ledger
- > age analysis > (reveiw subsequent events > look at (reciepts since the period end,
credit notes issued since the period end, correspondence with customer)> done to
 ensure most balances are cleared during the credit period > if not should consider bad
debt provision
- >3rd party verification > (receivables verification letter > however just because they
verify they have to pay dosnt not mean they are goin to pay)
- ……
-
- The trade receivables stated in the balance sheet are valid transactions of PepsiCo’s
real customers (existence)

- >> The trade receivables due to PepsiCo are valid and have not been
factored (ro)
- >>>>>>>>>
- >> trade receivables are of the right value and are accurately classified in
the balance sheet with disclosures of adequate allowance for doubtful
doubt and write-offs (v, pd)
- >> In the balance sheet, the trade receivables due are recorded in the right
accounting period (c)
- >> the trade receivables stated in the balance sheet exist in the end of the
accounting period and is a reflection of PepsiCo’s real customers (e)

test of valuation in the audit of accounts receivable

● Compare the irrecoverable debt expense as percentage of sales with
the previous year and the industry average
● Compare the allowance for irrecoverable debts as percentage of
accounts receivable with the previous year and the industry average
● Compare accounts receivable turnover and receivables days with the
previous year and the industry average
● Obtain and agree the detailed aged receivables listing to trial balance
● Select a sample of old debts on detailed aged accounts receivable to
discuss the recoverability with management and further review on
customers’ responses
● Review and discuss with management on allowance for doubtful
accounts
● Determine the reasonableness of allowance for doubtful accounts
 ● Examine credit notes issued after year-end that should be made
against current period balances
● …..

Unique audit procedures for testing accounts

receivables:

● Matching opening balances of accounts receivables to last year’s closing balances.

● Applying analytical procedures to find any unusual differences and reasons behind
them.
● Obtaining receivables ageing report from the client and matching the figures to
accounts receivables general ledger.
● Recalculating the figures of accounts receivables general ledger to confirm the
accuracy.
● Verification of invoices against the supporting documentation to verify that correct
postings are carried out in the general ledger.
● Verifying the sales period by inspecting the shipment documents of those sales.
● Verifying completeness and existence by sending direct confirmations to debtors.
● Reviewing the company’s policy for allowance for doubtful debts and applying it to
the receivables balances.
● Comparing general ledger balances to actual receivables listings and checking their
accuracy.
● Analyze that the necessary disclosures for bad debts and other significant events are
correctly presented in the notes to the financial statements.
 ● Applying cut off procedures to verify that amounts recorded in the current year do not
relate to other periods.

………….
References:

2016. Audit Program for Accounts Receivable and Sales. [ebook] Available at:
<https://docplayer.net/16263864-Audit-program-for-accounts-receivable-and-sales.html> [Accessed 15
May 2021].

n.d. audit program for accounts receivable. [ebook] Available at:

<https://www.yumpu.com/en/document/read/45589435/audit-program-for-accounts-receivable-accountan
cy> [Accessed 16 May 2021].

Zelenkov, M., 2008. Effect of Exchange Rate Differences Relating to Receivables and Payables in
Consolidated Financial Statement. [ebook] Available at: <https://cfuc.vse.cz/pdfs/cfu/2008/03/07.pdf>
[Accessed 16 May 2021].

Encarnacion, M., n.d. AP-3: ⇒Audit Program for Accounts Receivable Company Balance Sheet Date.
[online] Academia.edu. Available at:
<https://www.academia.edu/7920464/AP_3_Audit_Program_for_Accounts_Receivable_Company_Balanc
e_Sheet_Date> [Accessed 18 May 2021].

Jensen, J., 2020. Audit Program for Accounts Receivable and Sales. [ebook] Available at:
<https://www.studocu.com/en-us/document/association-of-chartered-certified-accountants/association-of-
chartered-certified-accountants/summaries/audit-program-for-accounts-receivable-and-sales/7507350/vie
w> [Accessed 14 May 2021].

2018. Substantive- Audit- Procedures- Receivables- Prepayments. [ebook] Available at:

<https://www.studocu.com/en-us/document/rhodes-university/auditing/lecture-notes/print-substantive-audi
t-procedures-receivables-prepayments/3004456/view> [Accessed 17 May 2021].

Auditboard.com. n.d. Audit Checklist: How to Conduct an Audit Step by Step. [online] Available at:
<https://www.auditboard.com/blog/audit-checklist-how-to-conduct-an-audit-step-by-step/> [Accessed 17
May 2021].

PepsiCo, 2020. Annual Report 2020. [online] Available at:

<https://www.pepsico.com/docs/album/annual-reports/pepsico-inc-2020-annual-report.pdf?sfvrsn=d25439
e4_4> [Accessed 13 May 2021].