AUDIT AND INTERNAL REVIEW (BACT 307)

Name: Amissah Emerald

Index Number: 10108425
Course: Accounting, Group 2
Session: Evening, level 300

Audit Programme: Accounts Receivables

Step Audit Procedure

I. Objectives of the Review

1. Evaluation of compliance with corporate policies and procedures

2. Evaluation of overall efficiency and effectiveness of process internal controls and

procedures.

3. Evaluation of processes and practices against known best practices.

II. Work Programme Steps

Planning:
a) Review known best practices and research the internet.
b) Set up binder.
c) Develop project plan and determine scope. d) Prepare budget.
e) Plan a coordination meeting with Process Owner.
f) Obtain Accounts Receivable process/functional overview and expense allocation.

4. Obtain a copy of Accounts Receivable and Credit & Collections policies and
procedures. Review procedures prior to beginning fieldwork.
Draft any questions that may be asked during interviews and while process mapping.

Review the following known best practices:

 Eliminate barriers to payment by offering customers multiple payment options,

flexible billing cycles, and incentives to pay early.
  Create a single point of contact for all incoming customer calls regarding
payments and use technology to route the calls to the appropriate service
representative or automated activities
 Ensure that all employees with customer contact work together to deliver a
consistent message to the customer regarding company’s credit policies and goals.
 Use credit scoring to assign the customer a credit rating that will trigger
appropriate sales and collections treatment
 Continuously update customers’ credit ratings using a behavioural scoring
system which monitors customer payment behavior, usage activity, and total
customer account exposure versus assigned credit limits.
 Use the credit and collections process to enhance customer satisfaction.
 Develop, monitor, and motivate collections specialists using individual and team
performance measures.
 Use performance measures to select and monitor outside collection agents, if it is
cost-justified to employ them.

5. Based upon interviews, gain an understanding of the following areas:

 Overall accounts receivable process
 Customer credit rating system/scoring process
 Order entry process (High level review of A/R’s role in the order entry process –
i.e. credit classification, etc.)
 Process for monitoring of credit standings
 Reconciliation of shipped items to invoices; G/L reconciliation
 Invoicing process
 A/R cash application process
 Process for collection of overdue amounts
 Process for writing off overdue receivables
 Management reporting (including process performance metrics)
 Reserve process – (Coordinate with external auditors to determine their process
for review the company’s reserve values to ensure that there is no duplication of
effort).

Compare all processes to known best practices (if applicable) to determine any
suggestions for process improvements.

6. Obtain an understanding and evidence of the accounts receivable/credit & collection

process by performing the following transaction testing:
 Review the company's A/R trial balance for unusual and/or large items and
investigate, if necessary. Items should be > 60 days and > 5% of total A/R balance.
 Review detail of significant past due balances and discuss with management.
Obtain and document the probability of collectability and plans for collection.
 Verify compliance with existing policies and procedures.
 Ensure completeness of recording.
 Verify customer payments made.
  Verify accuracy of recording.
 Review credit due dates – aged amount.
 Verify proper authorizations (if necessary).
 Select 10 – 20 cash receipts. Ensure that all receipts are posted in a timely
manner and procedures are in compliance with established policies and procedures.
 Select 10 – 20 invoiced transactions. Ensure that invoicing procedures occur in a
timely manner are in compliance with established policies and procedures.
 Review credit ratings for 10 customers. Ensure that credit classifications are in
alignment with scoring policies. Document all discrepancies.
 Obtain an analysis of Allowance for Doubtful Accounts. Verify that the
allowance is adequate and has been calculated in line with corporate policy.
 Review A/R reconciliation to G/L – verify timeliness.
 Review A/R reserved amounts Obtain the following background information:
 Number and cedi value (absolute) of invoices for the last six months – obtain soft
copy of information
 Current aging of the receivables – identify high value invoices, credit notes, etc.
 Numeric sequence (search for duplicates & missing invoices)
 Receivables by location (i.e. Accra, Tema, Kumasi, etc.) – obtain soft copy of the
information
 Percentage of debit/credit memos by location (i.e. Accra, Tema, Kumasi, etc.) –
obtain soft copy of the information

Match billings to shipping reports for quantities shipped but not billed; matching
billing date to shipping date – determine the time gap
7. Discuss findings with management prior to drafting audit report.

8. Draft final report in conjunction with process owner

9. Distribute final report as prescribed by internal audit distribution list
10. Schedule follow-up as appropriate.

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Audit Programme: Accounts Payable