NAME OF AGENCY

AUDIT PROGRAM
FOR THE PERIOD ________________

NOTES RECEIVABLE
( Account Code 122 )

Account Description: The account Notes Receivable is used to record the value of
promissory notes, time drafts, trade acceptances and other negotiable short-term
instruments from trade debtors.

Audit Objectives:

1. To determine whether receivables represent valid claims against debtors and other
parties.
2. To determine whether all notes receivables are owned by the entity as of balance
sheet date.
3. To determine whether all valid receivables are completely and properly recorded.
4. To determine whether the related allowance for doubtful notes is reasonably
provided.
5. To determine whether the presentation and disclosure of notes receivables is
adequate including the reporting of any receivables pledged as collateral and the
related party receivables.

Assertions: Existence or Occurrence ( EO ), Rights and Obligation ( RO ),

Completeness ( C ), Valuation or Measurement ( VM ), Validity/Legality or
Regularity ( VR ) Presentation and Disclosure ( PD ).

TIME
ASSERTION

AUDIT FRAME
TO
WP
FS

PROCEDURES Ref
BE
DONE REMARKS
BY DATE DATE
STARTED COMPLETED

1.1 Prepare or obtain a Schedule of the C

Notes Receivable as of balance sheet EO
date.
1.2 Trace beginning balance appearing in C
the GL to prior year’s working paper. EO

1.3 Check the balances of the schedules C

against the GL. EO

1.4 Verify the correctness of postings in C

the SL through the General Journal EO
(GJ) to the journal entry voucher
(JEV).
1.5 Check totals in the GL and SL. C
EO
 TIME

ASSERTION
AUDIT FRAME
TO
WP

FS
PROCEDURES Ref
BE
DONE REMARKS
BY DATE DATE
STARTED COMPLETED

1.6 Send confirmation letters to debtors. C

(See confirmation procedures for the EO
steps to be followed.) Include in each RO
request for confirmation the
following: balance of the principal,
date, maker, due date, interest rate,
date through which interest has been
paid and collateral, if any.
2.1 Examine selected debits and C
credits after balance sheet date to EO
determine whether there are VM
unrecorded notes receivable and
collections for the year under audit
but which were erroneously taken up
in the subsequent year.
2.2 Review the entries in the GL.

For debits to the account:

 Trace postings to the subsidiary C
ledger, JEVs, supporting EO
promissory notes and other RO
documents.

 Examine individual source C

documents such as promissory EO
notes or other documents for: Va/RL

 Regularity
 Authorization and approval
 Validity
 Accuracy

For credits to the account:

 Trace postings to the JEV, C

Report of Collections and EO
Deposits (RCD) and Cash
Receipts Journal (CRJ)/GJ.

3.1 Perform analytical procedures like C

notes receivable turnover. Compute EO
the turnover of receivables and VM
compare it with that of the preceding
year indicating averages. Obtain
explanation from agency for
unusually low turnover rate.

3.2 Compare a sample of shipping C

documents to the related invoices for EO
orders which have been shipped but VM
not billed.
 TIME

ASSERTION
AUDIT FRAME
TO
WP

FS
PROCEDURES Ref
BE
DONE REMARKS
BY DATE DATE
STARTED COMPLETED

4.1 Examine and verify the correctness of C

the aging schedule of debtor’s EO
balances as of balance sheet date. RO
Note down long outstanding, dormant VM
and unusually large balances in the
accounts. Investigate the reasons.

4.2. Examine promissory notes and C

determine whether the terms and EO
conditions were strictly enforced. VR
VM
4.3 Review allowance provided for notes. C
Agencies engaged in business in EO
in which note transactions are VR
VM

voluminous normally set up a

separate allowance for doubtful notes.
Agencies accepting only a few notes
normally provide an amount in the
allowance for doubtful accounts to
take care of possible note losses.

4.4 For notes written off during the year, C

examine notes and approval of write EO
off. VR
VM
4.5 Check whether complete records are C
maintained for notes written off and EO
are kept by a responsible employee.
4.6 Ensure that a complete follow up of C
notes written off is made and EO
collections received are properly VM
accounted for.
4.7 Follow up subsequent collection of C
notes and the corresponding interest. EO
VM
4.8 Examine collateral and determine VR
their adequacy to secure the notes. RO
5.1 Check whether the account is VR
presented in the balance sheet as PD
current assets except for long-term
notes. Notes receivable may either be
combined with or separated from
accounts receivable. See that it
conforms to the provisions of the
NGAS.
 TIME

ASSERTION
AUDIT FRAME
TO
WP

FS
PROCEDURES Ref
BE
DONE REMARKS
BY DATE DATE
STARTED COMPLETED

5.2 Review adequacy of disclosures made VR

with those required by generally RO
accepted accounting principles. PD
There should be disclosure of the
pledging or assigning of notes.
Evidence of such activities can also
be obtained from a

review of the minutes of board of

director’s meetings and inquiry from
management.

5.3 Take note of all the deficiencies.

Prepare and issue AOM.

PREPARED BY : REVIEWED BY : APPROVED BY :

Date Date Date