HOW TO AUDIT BILLS RECIEVABLE

 Trace receivable report to general ledger . The auditors will ask for a
period-end accounts receivable aging report, from which they trace the
grand total to the amount in the accounts receivable account in the general
ledger. (If these totals do not match, you may have a journal entry
somewhere in the general ledger account that should not be there)
 Calculate the receivable report total . The auditors will add up the
invoices on the accounts receivable aging report to verify that the total
they traced to the general ledger is correct.
 Investigate reconciling items. If you have journal entries in the
accounts receivable account in the general ledger, the auditors will likely
want to review the justification for the larger amounts. This means that
these journal entries should be fully documented.
 Test invoices listed in receivable report . The auditors will select
some invoices from the accounts receivable aging report and compare them
to supporting documentation to see if they were billed in the correct
amounts, to the correct customers, and on the correct dates.
 Match invoices to shipping log. 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.
 Confirm accounts receivable. A major auditor activity is to contact
your customers directly and ask them to confirm the amounts of unpaid
accounts receivable as of the end of the reporting period they are auditing.
This is primarily for larger account balances, but may include a few random
customers having smaller outstanding invoices.
 Review cash receipts . If the auditors are unable to confirm accounts
receivable, their backup auditing technique is to verify that customers have
paid the invoices, for which they will want to review check copies and trace
them through your bank account.
 Assess the allowance for doubtful accounts . The auditors will review
the process that you follow to derive an allowance for doubtful accounts.
 This will include a consistency comparison with the method used in the last
year, and a determination of whether the method is appropriate for your
business environment.
 Assess bad debt write-offs. The auditors will compare the proportion
of bad debt expense to sales for this year in comparison to prior years, to
see if the current expense appears reasonable.
 Review credit memos. The auditors will review a selection of the
credit memos issued during the audit period to see if they were properly
authorized, whether they were issued in the correct period, and whether
the circumstances of their issuance may indicate other problems. They may
also review credit memos issued after the period being audited, to see if
they relate to transactions from within the audit period.
 Assess bill and hold sales . If you have situations where you are billing
customers for sales despite still retaining the goods on-site (known as "bill
and hold"), the auditors will examine your supporting documentation to
determine whether a sale has actually taken place.
 Review receiving log. The auditors will review the receiving log to see
if it records an inordinately large amount of customer returns after the
audit period, which would suggest that the company may have shipped
more goods near the end of the audit period than customers had
authorized.
 Related party receivables. If there are any related party receivables,
the auditors may review them for collectibility, as well as whether they
should instead be recorded as wages or dividends, and whether they were
properly authorized.
 Trend analysis. The auditors may review a trend line of sales and
accounts receivable, or a comparison of the two over time, to see if there
are any unusual trends. Another possible comparison is of receivables to
current assets. They may also measure the average collection period. If so,
expect them to make inquiries about the reasons for changes in the trends.