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Audit of Receivables PSP

The document outlines the objectives and primary substantive procedures for auditing accounts receivable. The objectives are to determine if receivables exist, are complete, are properly valued with appropriate allowances, the entity has rights to the receivables, and receivables are properly presented. The primary procedures include agreeing the receivables sub-ledger to the general ledger, confirming receivables and cash receipts, rollforward procedures, cutoff testing, evaluating the allowance for doubtful accounts, other adjustments, valuation of foreign currency receivables, and reviewing credit balances and unusual items.

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869 views6 pages

Audit of Receivables PSP

The document outlines the objectives and primary substantive procedures for auditing accounts receivable. The objectives are to determine if receivables exist, are complete, are properly valued with appropriate allowances, the entity has rights to the receivables, and receivables are properly presented. The primary procedures include agreeing the receivables sub-ledger to the general ledger, confirming receivables and cash receipts, rollforward procedures, cutoff testing, evaluating the allowance for doubtful accounts, other adjustments, valuation of foreign currency receivables, and reviewing credit balances and unusual items.

Uploaded by

Marriel Fate Cullano
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Audit of Receivables

OJT Task No. 6


OBJECTIVES
The principal objectives in auditing accounts receivable are to determine whether:

 All receivables on the balance sheet are real claims of the entity (Existence assertion);

 All real claims of the entity for amounts receivable are included on the balance sheet
(Completeness assertion);

 Receivables are carried at their net realizable (collectable) value (i.e., the gross receivables
are properly stated with appropriate allowances provided for doubtful accounts, discounts,
returns, warranties and similar items) (Valuation assertion);

 The entity owns, or has a legal right to, all the receivables on the balance sheet at the balance
sheet date. All receivables are free of liens, pledges, or other security interests or, if not, such
liens, pledges, or other security interests are identified (Rights and Obligations assertion);

 Receivables are properly classified, described, and disclosed in the financial statements,
including notes, in accordance with the applicable financial reporting framework (Presentation
and Disclosure assertion).
Primary Substantive Procedures
applicable to AR
PSP 1: AGREEMENT OF SUB-LEDGER WITH GENERAL LEDGER
Agree receivables sub-ledger to the general ledger control account and investigate large and unusual
reconciling items.

PSP 2: CONFIRMATIONS AND SUBSEQUENT CASH RECEIPTS


Verify the existence of accounts receivable trade through confirmation, examination of subsequent cash
receipts, or other alternative procedures, as appropriate. 

PSP 3: ROLLFORWARD PROCEDURES


If accounts are verified at an interim date, review the rollforward of activity from the interim date to the
balance sheet date in a manner responsive to our combined risk assessment and compare level of activity
with prior periods. Investigate unusual items; consider confirming (at the balance sheet date) significant
new accounts and those accounts with significant increases or decreases between the interim date and the
balance sheet date.

PSP 4: ACCOUNTS RECEIVABLE CUT-OFF


Perform analytical procedures to identify peaks in sales volume in the last few days or weeks of the year and
test cutoff by inspecting sales register, billings, shipping documents and other supporting documents before
and after the year end date. Where we perform substantive procedures at an interim date, we perform cutoff
testing at that date also.
Primary Substantive Procedures
applicable to AR
PSP 5: ALLOWANCE FOR DOUBTFUL ACCOUNTS
Evaluate the adequacy of the allowance for doubtful accounts, including the appropriateness of the
methodology used to calculate the allowance.

PSP 6: OTHER ADJUSTMENTS TO ACCOUNTS RECEIVABLE


Evaluate the adequacy of other adjustments to accounts receivables, such as rebates, credit memos,
discounts.

PSP E7: ACCOUNTS RECEIVABLE IN FOREIGN CURRENCIES


Test appropriate valuation of accounts receivables in foreign currencies.

PSP 8: CREDIT BALANCES AND UNUSUAL ITEMS


Inquire about or review list of credit balances and investigate large items.

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