Develop the Audit Program – Accounts Receivable Ref.

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Client: ORION-HANEL PICTURE TUBE CO LTD Audit date: 31 Dec 2002

Financial Statement Assertions

Audit Objectives: E/O C R&O V/M P&D
 All receivables on the balance sheet are real claims of the entity.  
 All real claims of the entity for amounts receivable are included on the balance 
sheet.
 Receivables are carried at their net realizable (collectible) value (i.e., the gross 
receivables are properly stated with appropriate allowances provided for
uncollectible accounts, discounts, returns, warranties, and similar items).
 The entity owns, or has a legal right to, all the receivables on the balance sheet at 
the balance sheet date. All receivables are free of liens, pledges, or other security
interests or, if not, such liens, pledges, or other security interests are identified.
 Receivables are properly classified, described, and disclosed in the financial 
statements, including notes, in conformity with prescribed accounting principles.

Assertions:
Existence or Occurrence, Completeness, Rights and Obligations, Valuation or Measurement, Presentation and Disclosure

Audit Procedures to Consider

Assertions Auditor
addressed Check if
by the item is W/P Sign-
procedure applicable Ref. Off
E, C, P&D 1. Obtain or prepare a listing of accounts receivable and investigate            
unusual balances, credit balances, and accounts that may not be
accounts receivable, or may not be properly classified as trade
accounts receivable (e.g., consignment accounts, related-party or
employee accounts).
E, V 2. Obtain or prepare an aged trial balance of trade accounts
receivable.
a) Test the clerical accuracy.            
b) Reconcile the total to the general ledger control account and            
investigate significant reconciling items.
c) Test the propriety of the aging by examining original            
supporting documentation (e.g., sales invoices, shipping
documents). Consider having the client update our copy of
the aged trial balance for all subsequent cash collections. If
remaining uncollected balances are not significant, testing
the aging of individual accounts may not be necessary or the
extent of our testing may be limited.

Date:

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E&Y SMALL BUSINESS DOCUMENTATION Prepared by:

SB-19b (12-00) Develop the Audit Program - Accounts Reviewed by:

Receivable
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Assertions Auditor
addressed Check if
by the item is W/P Sign-
procedure applicable Ref. Off
E, C, V 3. Confirm accounts receivable. Select key items (accounts greater            
than 25%TE and accounts with the following characteristics:
     
). If necessary, select a representative sample of the remaining
accounts using EY/MicroSTART.
a) Investigate explanations for differences on confirmations            
received.
b) Send second requests for all unanswered confirmations.            
c) Perform alternate procedures (e.g., examine subsequent cash            
receipts, shipping records, sales contracts) on non-replies.
d) Summarize the results of the confirmation procedures.            
E/O, V 4. Compare current year's receivables as a percentage of net sales            
with prior years' percentages.
E/O, V 5. Compare discounts, returns, and allowances with prior years            
(e.g., as a % of sales).
E/O, C, V 6. Test shipments greater than 25%TE for 10 days before and after            
year end to determine that the sales were recorded in the proper
period. Review the level of sales and shipments before and after
year end for any evidence of “spikes” in activity (e.g., compared
to normal levels) and consider whether additional cutoff
procedures are necessary.
E/O, C, V 7. Test for out-of-period credit memos by examining those greater            
than 25%TE issued for the period from the balance sheet date to
15/1/2003. Review the level of sales returns and credits before
and after year end for any evidence of “spikes” in activity (e.g.,
compared to normal levels) and consider whether additional
procedures are necessary.
V, P&D 8. Evaluate the adequacy of the allowance for doubtful accounts            
and the related provision.
a) From the aged trial balance as of year end, select accounts            
with balances greater than 25%TE, accounts greater than      
that are more than 90 days past due, and any additional
accounts deemed necessary (e.g., history of collection
problems, industry concentration).
b) Review and test subsequent collections for the accounts            
selected.
c) For the accounts selected, discuss collectibility concerns            
with the credit manager or other responsible individual and
review correspondence files or other relevant data in support
of the client’s representations.
d) Compare the current year's accounts receivable turnover            
and/or number of days sales outstanding with prior years.
e) Compare bad debt expense and write-offs with prior years.            
f) Conclude on the adequacy of the allowance.            
E/O,V/M 9. Review the accounts receivable and sales accounts in the general            
ledger, and the sales and cash receipts journals, and investigate
any unusual items.
R&O, P&D 10. Review bank and debt confirmation replies, minutes, loan            
agreements, and other documents for evidence of liens, pledges,
or other security interests in receivables. Determine that
necessary disclosures are made.
P&D 11. Identify major customers and any concentration of credit risk and            
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E&Y SMALL BUSINESS DOCUMENTATION Prepared by:

SB-19b (12-00) Develop the Audit Program - Accounts Reviewed by:

Receivable
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Assertions Auditor
addressed Check if
by the item is W/P Sign-
procedure applicable Ref. Off
evaluate need for disclosure.
E/O, V/M, 12. Examine the details of other accounts or notes receivable.            
P&D
Consider sending positive confirmations for significant accounts.
Determine that interest, if any, on these accounts has been
received and properly recorded.
13.                  
14.                  

Date:

e
E&Y SMALL BUSINESS DOCUMENTATION Prepared by:

SB-19b (12-00) Develop the Audit Program - Accounts Reviewed by:

Receivable