Accounts receivable framework
Accounts receivable master file Transaction File
• Customer number • Customer number
• Customer code • Transaction number
• Customer name • Transaction type
• Balance owing(BOY) • Transaction date/invoice date
• Balancing owing(EOY)
• Credit limit
• Available credit limit
General (MIDAS)
1. Using CAATs extract the debtor’s age analysis from the database/master file:
1.1 Re-perform the debtor’s age analysis, to ensure it is aged per invoice date.
1.2 Agree the balance in the debtors control account to the general ledger and trial
balance.
1.2 Cast and cross cast for the mathematical accuracy thereof.
Existence
2. Using CAATs:
2.1 Extract a report of transactions that have transaction /sales /invoice date after the
reporting date of the client.
2.2 Extract a report for instances where the customer numbers do not comply with the
standard account number format.
2.3 Filter for any missing fields to determine which customer does not have a customer
number, as this can be an indication that this is a fictitious debtor.
2.4 Filter the customer number filed to identify any duplicate entries that can indicate
duplicate debtors.
2.5 Select a statistical sample of large debtor’s balances; thereafter perform a debtor’s
confirmation to confirm the valuation and existence of debtors.
3. Compare the debtors listing for the current year to the prior year, to identify new debtors and
old debtors.
4. For new debtors, inspect a sample of credit application forms, the debtors master file form for
the signature of accounts receivable manager signature for proof of authorisation.
Completeness
5. Stratify the transaction file by transaction type:
5.1 Using CAATs extract a report of any missing transaction number for any breaks in
the sequence.
5.2 Generate a report of any breaks in the sequence number of invoices (to verify that
there is a valid reason for the missing invoice numbers)
5.3 Extract a report of instances where the customer number appears in the
transaction file but does not appear in the master file, to ensure the completeness
of accounts receivable balance.
Valuation
6. Using CAATs:
6.1 Extract a list of negative balances on individual debtors at year end , thereafter
follow up through discussion with management(if material request management to
reverse or to aggregate to the statement of overs and unders)
6.2 Extract a report where the credit terms have changed and trace them to the
master file amendment forms for approval.
6.3 Extract a debtor’s age analysis and identify accounts that exceed their credit limits
and follow up through discussions with management.
6.4 Extract a report of debtors with large number of transaction with low balances
owing at year end, to detect fictitious payments or overstatement of sales.
6.5 Extract the debtor’s age analysis and filter for the different categories, to assess
whether the recoverability have strengthen or weakened.
6.6 Recalculate the balances for the debtors for the year end taking into account all
sales discount and deposits into account and compare to the balances as at year
end.
7. Inspect the bank statement for payments made after year end, to confirm that the balances
have been appropriately reduced.
7.1 Follow up on debtors who haven’t paid
8. Enquire from management and those charged with governance the method used for calculating
the allowance for doubtful debts.
9. Assess the reasonableness of the method used for calculating the allowance by:
9.1 Comparing the basis of computing the allowance by competitors.
9.2 Comparing the bad debt written off during the current year to the prior year‘s
allowance.
10. Obtain the working to estimate the allowance for bad debts from management and
10.1 Re-perform all calculations in the working to verify their mathematical accuracy.
11. Assess the reasonableness of the change in the allowance for bad debt by aging of the debtor’s
analysis at the current year to prior year.
12. Inspect the board minutes (signed) to corroborate the reasonableness of the allowance for bad
debts was considered and approved.
