F – CREANTE CLIENTI / Receivables

Revised by/
Performed
Done/ No/

paper ref.
Not appl.

Working

by/ date

date
Task description

1. Risk/control issues
Enquire those in charge about the controls which function in this area. Enquire about the application of the
following controls. Document the information obtained from the interviews in a working paper. Where applicable
test the application and functioning of controls (document the results of tests in the working paper). Draw a
conclusion regarding the control over this area and the level of reliance to be placed on controls (high, medium,
low).
How can management be assured that all goods delivered and services performed are identified and duly
invoiced to customers?
What steps are taken to avoid trading involvement with financially unstable or unsuitable customers?
What procedures ensure all the required invoices are correctly raised using the appropriate prices and
discounts, and that they are recorded, dispatched, and accounted for within the accounting system?
How can management be certain that all customer remittances are correctly identified, recorded and accounted
for?
Are management provided with adequate, timely and accurate information on potential and actual debt cases to
enable them to promptly react?
Are output VAT or equivalent sales taxes correctly and consistently applied in accordance with the prevailing
legislation?
What processes prevent the generation of duplicate invoices?
What would prevent the generation and dispatch of an incorrectly completed invoice?
Are there adequate procedures for the authorization and setting of realistic customer credit limits?
How can management be certain that agreed credit limits are not exceeded?
What prevents staff raising invalid or false credit notes in order to manipulate an account?
Are all credit notes checked for validity/accuracy and authorized by an appropriate member of staff?
Are all bad debt write offs authorized by an appropriate member of staff or management?
Can invalid or false write off entries be processed?
2. Agree detailed listing of accounts receivable to the trial balance (A)
Obtain a list with all accounts receivable balances (if possible with invoices breakdown and date of invoices to
allow ageing analysis), check the mathematical accuracy of the total and trace the total against the trial balance.
Scan the detailed listing of accounts receivable and investigate significant or unusual items (e.g. accounts
replaced with notes, large balances, credit balances).
Note: the “completeness” audit objective for accounts receivable should be tested by performing the following
steps, as applicable, in the Sales area: “test recorded sales”, “test sale returns” and “test sales discounts”.
3. Test selected items against supporting documents (A, E)
Trace the items from the list obtained above against supporting documents (invoices, credit notes etc). In case
the number of items on the list is too high make a selection and test the sample (please refer to sampling
methodology on how to select the sample).
4. Confirm selected accounts receivable balances (E, RO)
Send confirmation requests of accounts receivable balances under our control. Summarize confirmation
coverage. Obtain confirmation letter from counterparties and trace the amount as per confirmation against
amount as per accounts receivable breakdown. Investigate differences if any and determine whether
adjustments are necessary.
5. Perform alternative confirmation procedures (E, RO)
For situations when it is impossible to confirm a selected amount (including when confirmation requests
remained unanswered) perform the following steps to obtain the desired level of assurance:
- check that accounts receivable balances outstanding at the audit date have been received subsequently by
tracing them against bank statements;
- examine documentation such as shipping documents, copies of sales invoices, customer sales orders,
other documents proving the delivery of goods or services (coordinate this test with the review of the
collectability of overdue accounts);
- consider whether it is necessary to verify the existence of the customer.
F – CREANTE CLIENTI / Receivables

Revised by/
Performed
Done/ No/

paper ref.
Not appl.

Working

date
Task description

6. Check the translation of accounts receivable expressed in foreign currencies (V)

Obtain a list with all receivable accounts balances per currency and amount. Value the receivable accounts
balances denominated in different currencies using exchange rates at the audit date and trace the total against
accounts receivable balance as per trial balance.
7. Review bad debts write-offs (V)
Consider the reasonableness of bad debt expense in light of the levels of bad debt write-offs compared with prior
years and examine documentation relating to write-offs during the period and determine whether they were
properly authorized.
8. Consider indications of impairment of accounts receivable (V)
Undertake procedures to identify specific receivables which might be impaired:
- obtain from the legal department or from the external counsel a list of all litigations. Look for litigations
regarding receivables;
- enquire of management regarding any clients in insolvency, liquidation, other difficulties;
- discuss with management recoverability of amounts due past 90 days;
- for amounts due to have been received by the audit date, make a representative selection of amounts and
trace them back to the bank statement. If the amounts have not been received, enquire of management for
explanations.
Obtain the list of bad and doubtful clients for which an allowance has been made and ensure that all receivables
identified above have been provided for. Propose additional specific provisions if necessary.
Review and test the process used by management to develop their estimate of collectability of amounts.
9. Assess the adequacy of allowance for doubtful accounts (V)
Obtain a list of accounts receivable balances by age. Review the overall reasonableness of the aging and
investigate unusual trends. Trace the total against trial balance. Determine whether the ageing is correct by
reperforming the ageing, if possible.
Where provisions are made by the use of formulae based on the aged listing, determine whether the basis is:
- consistent with prior years;
- appropriate to the circumstances of the business;
- in accordance with the accounting policy.
Assess whether the allowance is sufficient and reasonable and whether any additional allowance is necessary.
Propose adjustments if necessary.
10. Test sales / accounts receivable cut-off (CO)
Check the last 5 invoices before audit date and the first 5 invoices after audit date. Obtain and examine related
records of goods shipped or services performed to determine whether invoices have been recorded in the proper
period.
For selected credit notes before and after the audit date examine related records of returns and claims from
customers to determine that the credit notes are recorded in the proper period.
Determine whether there are unusually high volumes of goods returned after the year end.
Consider unusual fluctuations in sales or return patterns before and after the year end and review for possible
cut-off errors.
11. VAT (A, V)
Make sure that the correct rate of output VAT (or equivalent sales tax) is applied to all relevant invoices.
12. Identify receivables with related parties (PD)
Identify receivables from related parties. These amounts are to be presented separately in the financial
statements.