AUDIT PROGRAM FOR ACCOUNTS RECEIVABLES

CLIENT NAME:

DATE OF FINANCIAL STATEMENTS:

AUDIT OBJECTIVES FINANCIAL STATEMENT ASSERTIONS

1. All accounts receivable should ● Existence

exist in the balance sheet with ● Valuation
respect to its proper valuation, as ● Accuracy
well as the related allowance as to
its method used for estimation.

2. All events and transactions relating

to A/R and those actually incurred ● Accuracy
and pertaining to the entity should ● Completeness
be properly disclosed including all ● Rights
required disclosures. All required ● Existence
disclosures should be expressed ● Cut-off
clearly and disclosed fairly at
appropriate amounts.

3. .Controls over receivables should ● Accuracy

consider the shipment to ● Classification
customers, the verification of ● Cut-off
contract, the proofread invoices, ● Completeness
the billing, segregation of duties, ● Occurrence
reviewing Journal entries of A/R
the audit invoice packets, match
billings to shipping logs, and audit
the application of cash receipts

RISK

A.
● Accounts receivable may not exist
● Receivables do not reflect their economic value
B.
● Credit sales is not recorded as account receivables
● Some of the receivables are not collected
● Overstatement or understatement of receivables and revenue
● Improper recognition of transaction
● Missing collections
● Balances were not properly recorded
● Repetition of receivable and sales accounts
● Pre-payments were not tracked or maintain
● New bad debts occurrences were not check

C.

● Delay of Delivery
● Late confirmation of item
● Missing receipts
● Unmatched billings to shipping logs
● Missing items
● Incorrect journal entries
● Lack of employee
● Collusion of employees
● Unverified contracts
● Incorrect Billings

A. RELATED CONTROL

A.

1. Approval for every transaction, and recording of the transaction may be sales and
receivable should be segregated.
2. Physical Control: only those who are authorized are allowed to sign any
documents pertaining to the shipment and delivery of items, verifying invoices
and/or billing statements for sales.
3. Accounts receivable can only be recorded when there are sufficient supporting
documents including customer purchase order, shipping document and sale
invoice to ensure the existence
4. Allowance for doubtful accounts are properly and regularly made based on the
collectability of each receivable
 B.
1. Review journal entries pertaining to the sales made on credit or cash: Done
through the use of clients sales system.
2. Monthly statement of a customer indicating their purchases and payment term or
any discount.
3. Approval of the credit granted and discounts to a customer.
4. Receivable turnover policies and control
5. Collection and recording of payment includes segregation of duties.
6. Recording of payment
7. Deposit collection in bank accounts.
8. Reconciliation of bank deposit and cash receipt of the company.
9. Report of overdue account: Aged debtors schedule
10. Review the financial statements receivables account and note if there is any
occurrence of bad debts.

C.

1. Require the signed approval of the credit department on all sales orders
2. Verify first unusual payment terms before creating an invoice.
3. Consider requiring the proofreading of larger invoices to mitigate invoices with
large amounts that contain error.
4. Assign different tasks to different people.
5. Investigate recording of A/R carefully
6. There should be a packet on file that contains the sales order, credit
authorization, bill of lading, and an invoice copy after invoices are completed
7. Investigate the differences of billings to the shipping log.
8. Periodically trace a selection of cash receipts to customer invoices to verify
proper cash application

SUBSTANTIVE PROCEDURES

TYPE OF AUDIT PROCEDURES PERFORMED:

1. CONFIRMING RECEIVABLES AND REVIEW SUBSEQUENT CASH RECEIPTS

1.1 Positively confirm selected accounts receivable balances

a. Send positive confirmation requests under control. Where

appropriate, send itemized statements to customers to make it easier for
them to respond. Second requests and, where warranted, third requests
should be mailed when responses to positive confirmation requests have not
been received within reasonable time.

b. Summarize confirmation coverage

 1.2 Review confirmation replies

a. Agree account information and account balance to detail listing

b. Reconcile the account detail between the returned confirmation and

the detail listing, where applicable; and

c. Investigate all reconciling items and determine whether any

adjustments are necessary

1.3 Test accounts where there is no confirmation

a. Compare subsequent remittances credited to accounts with

remittance advices or other receipts (e.g. deposit slips and bank statement)
and ascertain that payments relate to the account balances

b. Examine documentation such as shipping documents, copies of

sales invoices, customer sales orders, and other relevant correspondence
supporting the unpaid portion of the account balances. Coordinate this test
with the review of the collectability of overdue accounts; and

c. Consider whether it is necessary to verify further the existence of the

customer

2. EVALUATION OF ALLOWANCE FOR DOUBTFUL ACCOUNTS AND WRITE-OFF

2.1 Evaluate management process of creating the estimates

a. Obtain knowledge on how the entity develop the said estimate (credit and
collection process)
b. Consider the reasons regarding the management adjustment to the
allowance and any write-off to the doubtful accounts.
c. Evaluate the method used by the management in calculating the
allowance. (balance sheet method, income statement method)

2.2 Review if there has been any subsequent collection after the adjustments
made into write-off of doubtful accounts.

2.3 Develop auditor independent estimates. After gathering information about the
credit and collection process (3.1a) and method used for estimation (3.1c), the auditor
may come up with his own estimate and compare it with the management's estimate.
Any significant difference should be investigated and resolved by the management.
 2.4 Write-offs: determine if there's any significant amount written off during the year and
if these have been properly approved by the person responsible for the authorization
and approval.

3. DETERMINING ACCOUNTS RECEIVABLE BALANCE

3.1 Confirming account balances (rights, existence and accuracy)

a. Obtain a list of company debtors.

b. Verify to the client if they owed this amount to the company.
c. Trace the transaction pertaining to each account.
d. Examine related documents supporting the changes in balances of each
debtor .
e. Calculate the amount for accuracy.

3.2 Reconcile subsidiary ledger to general ledger (completeness)

a. Review the client information by obtaining records of their subsidiary

ledger and general ledger.
b. Used a cross-footing method to calculate the amount of the account.
Making sure that the amount listing is accurate.
c. Reconciliation of the amount from both ledgers.
d. Investigate reconciling items whether there is an unusual transaction and
if the account is properly reconciled(non-standard journal entries).

3.3 Procedure to do if the client has a notes receivable accounts: (Existence,

occurrence, rights, valuation, accuracy, completeness presentation and disclosure)

a. Inquire the accounting department if there is a change of form of

receivables.
b. Obtain a list of accounts subject to the notes receivable and its interest.
c. Recomputation of amounts: Accuracy of the information prepared by the
client.
d. Trace the item to the accounting records and to the notes.
e. Recalculation of the interest.
f. Documentation of the analysis in the working paper.
g. Investigate any material differences.

3.4 Making sure the amount is properly reflected in the country's currency which
will perform an audit.

a. Receivables subject to denomination must be converted to its proper

amount using the closing rate at the reporting date.
b. Reperform calculations
 c. The auditor should ensure that any gain or loss from foreign transactions
are reported properly in profit or loss.

3.5 Double-check all the receivables account.

a. Verify contract terms to both receivable and sales invoices (e.g, 3

months,6 months and 1 year)
b. Invoices must be proofread to confirm if it is in peso or dollar amount
c. Match the receivables listing to sales ledger account
d. Pre-payments must be considered from the past transactions in order to
ensure if it is accurate or complete and then disclosed .

3.6 Ascertain whether any receivables have been pledged or assigned

a. Evaluate the statement of financial position and statement of

comprehensive income for proper classification
b. Read footnotes. Disclosure about factoring, assigning, pledging, special
transaction and related party transaction.
c. Obtain and evaluate the management representation letter concerning the
revenue/ receipt cycle during the completion phase.

4. Examining material journal entries and other adjustments made during the
preparation of the financial statements

4.1 Investigate reconciling items

a. Document should be fully documented. Auditors want to review the justification

for the larger amounts if there are journal entries in the accounts receivable
account in the general ledger.

4.2 Calculate the receivable report total.

a. Auditors will add up invoices on A/R aging report

b. Verify that total traced in general account is correct

4.3 Match invoice to shipping log

a. Auditors will match invoice dates to the shipment dates in the shipping logs to
see if the sales are being recorded in the correct accounting period.

b. Examine invoices issued after the period being audited to see if they should
have been included in a prior period.
 4.4 Match collected funds invoices billed

a. Inspect the dates and compare with the dates of dispatch and the dates
recorded in the ledger for application of current cut-off l.

b. Examine for proper classification into revenue accounts.

4.5 Match customer orders to invoices billed

a. Examine customers' account and customer correspondence to assess

whether the balance outstanding represents specific invoices and confirm their validity.

b. Examine the underlying documents (purchase order, dispatch documentation,

duplicates sales and invoices)

4.6 Inquire management regarding the collectibility of customer accounts

a. Check the dates of invoices

b. Make inquiries of management and review board minutes for any evidence of
receivables being sold.

c. Inquire from management explanations for invoices remaining unpaid after

subsequent ones have been paid.