Auditing & Assurance Concepts

and Applications

CHAPTER 4
AUDIT OF RECEIVABLES
CHAPTER 4 - AUDIT OF RECEIVABLES

Sales and Accounts Receivable Balances

Existence or Objective: Sales and accounts receivables are for shipments made to customers.
occurrence:
Procedures:
1. Confirm accounts receivables and perform procedures for confirmations not
returned.
2. Perform analytical procedure to test sales and accounts receivable.
Completeness: Objective: Sales transactions that occurred and existing receivables are recorded.

Procedure: Perform test of sales cut-off

Rights and Objective: Accounts receivables are owned by the client.

obligations:
Procedure: review minutes of the board of directors’ meetings, inquire of the client
personnel, read contracts and agreements, and confirm with lenders any
indications that accounts have been assigned, sold or pledged.

Valuation and Objective: Account receivables are properly valued.

allocation:
Procedures:
1. Verify mathematical accuracy of the accounts receivable aging schedule and
trace it to the accounts receivable subsidiary ledger.
2. Test the adequacy of the allowance for uncollectible accounts.
Presentation Objective: Sales and accounts receivable are properly presented and disclosed in
and disclosure: accordance with GAAP.

Procedure: Review financial statements and perform analytical procedure to

determine whether accounts are classified and disclosed in accordance with GAAP.
CHAPTER 4 - AUDIT OF RECEIVABLES

Sales Transactions
Completeness: Objective: Sales transactions that occurred and recorded.

Procedure: For a sample of shipping documents, trace sales invoice and entry into
sales journal and accounts receivable subsidiary ledger. Perform cut-off tests.
Occurrence: Objective: Recorded sales are for shipments actually made to customers.

Procedure: For a sample of entries in the sales journal, compare sales invoice copy,
customer order, and sales invoice.
Classification: Objective: Sales and accounts receivable transactions have been recorded in the
proper accounts.

Procedure: For a sample of entries in the sales journal, verify the accuracy of
account coding.
Accuracy Objective: Sales are correctly billed and recorded.
(Valuation):
Procedure: For a sample of entries in the sales journal, (1) examine sales invoice,
shipping document and customer for consistency of descriptions and quantities; (2)
examine sales orders for credit approval; and (3) check prices and extensions. Foot
sales journal and general ledger account.
Audit of Receivables
CHAPTER 4 - AUDIT OF RECEIVABLES
CHAPTER 4 - AUDIT OF RECEIVABLES
CHAPTER 4 - AUDIT OF RECEIVABLES
 Any Questions?

© 2021. For information, contact Deloitte Global. Jump In — Introduction to Substantive Procedures
CONFIDENTIAL – INTERNAL USE ONLY
 CHAPTER 4 - AUDIT OF RECEIVABLES
​Key learning points

Key audit evidence when testing cash are

bank statements and bank confirmations

All items included in the bank

confirmation should be reviewed and
clearly documented in our testing

A bank reconciliation is re-performed to

identify reconciling items for further
testing

Reconciling items can arise as a result of

timing differences and or error

© 2021. For information, contact Deloitte Global. Jump In — Introduction to Substantive Procedures
CONFIDENTIAL – INTERNAL USE ONLY