Accounts Receivables

Document Sample
Accounts Receivables Powered By Docstoc
					                                      Audit Work Program – Receivables
                                    Subsidiary/Department:
                                                Date:


AUDIT OBJECTIVES:

To determine whether:
1. Receivables represent all amounts owed to the entity at the balance sheet date and have been properly recorded.
2. The allowances for doubtful accounts, returns and allowances and discounts are adequate but not excessive.
3. Receivables are properly described and classified and adequate disclosures with respect to these amounts
    (including disclosures of amounts that have been pledged, discounted or sold with recourse or are with related
    parties) have been made.

AUDIT PROCEDURES:

                                                                     WP     Done
                           Procedures                                                 By      Date        Comments
                                                                     Ref.   Y/N?

1)   ANALYTICAL PROCEDURES—GENERAL

     a)   Compare the balance of each significant receivable
          account with the comparable balance for the preceding
          period. Investigate significant or unusual fluctuations.

     b)   Compute the receivables turnover ratio (average
          receivables to net revenues) for the current period.
          Compare with the comparable ratio for the preceding
          period and consider its reasonableness in relation to
          revenue volatility, credit policy, collectability, etc.
          Investigate significant or unusual fluctuations.

     c)   Compute the average number of days of revenues in
          receivables for the current period. Compare with the
          comparable ratio for the preceding period and with
          industry statistics. Investigate significant or unusual
          fluctuations.

2) TESTS OF THE RECEIVABLES SUBSIDIARY LEDGER

     a)   Have the client prepare a reconciliation of the
          receivables subsidiary ledger to the general ledger
          control accounts as of the circularization or balance
          sheet date. Verify the clerical accuracy of the
          reconciliation and test it as follows:

          i)  Trace control account totals to the general ledger
              and subsidiary ledger totals to their source.
          ii) Examine supporting documentation for significant
              or unusual reconciling items. Scope:(         )

     b) Foot or test foot the subsidiary ledger to ensure that all
        recorded receivables balances are included in the totals.

     c)   Scan the subsidiary ledger for unusual balances or
          amounts (e.g., credit balances, amounts due from related
          parties, etc.). Investigate and examine supporting
          documentation, as appropriate. Consider including such
          accounts in the circularization scope.
3) TESTS OF TRANSACTIONS OF RECEIVABLES

   a)   Have the client prepare an analysis of the activity in the
        general ledger control accounts from the interim date to
        the balance sheet date. Test the activity as follows:

        i)   Compare the levels of the various types of activity
             (e.g., revenues, collections, etc.) in the accounts
             with the comparable amounts for prior and
             subsequent interim periods for the current and
             preceding periods. Investigate significant trends or
             fluctuations.
        ii) Review the          general     ledger    entries    for
             reasonableness. Obtain explanations for and inspect
             underlying accounting data (registers, journals or
             journal entries) for general ledger entries that appear
             to be unusual in nature, source or amount.
        iii) Trace the general ledger entries to the sources of
             original entry. Scan the books of original entry for
             transactions that appear unusual in nature, source or
             amount. Examine underlying support as appropriate.
             Scope:(        )

   c)   Have the client prepare a reconciliation of the
        receivables subsidiary ledger to the general ledger
        control accounts as of the balance sheet date. Verify the
        clerical accuracy of the reconciliation and test it as
        follows:

        i)  Compare the nature and amount of reconciling
            items with the comparable items as of the interim
            date. Investigate significant or unusual fluctuations.
        ii) Trace individual receivable balances from the
            subsidiary ledger to the detail receivable records.
            Test the clerical accuracy of the detail records.
            Scope:(       )

   d) Scan the receivables subsidiary ledger and consider
      circularizing or performing alternative procedures on
      significant outstanding balances not previously
      confirmed.

4) EVALUATION OF THE ADEQUACY OF                              THE
   ALLOWANCE FOR DOUBTFUL ACCOUNTS

   a)   Evaluate the following items and their impact on our
        review of the adequacy of the allowance for doubtful
        accounts. Document in a memorandum your findings
        related to:

            Changes in the client's credit and collection policies
             that have occurred during the audit period, including
             changes that have since been reversed or modified.
            Impact of new products or new markets and whether
             they involve a different, higher-risk customer.
            General economic conditions and trends adversely
             affecting the client's customers.
            Other ratios, trends or relationships that are unique
             to the client or its industry which relate to
             receivables valuation.
         Changes in methods, definitions or criteria for aging
          accounts that might affect comparability of the data.

b) Have the client prepare an analysis of the allowance for
   doubtful accounts for the current audit period. Verify the
   clerical accuracy of the analysis and test it as follows:

          (1) Cross-reference the provision for the current
              period to the appropriate expense lead schedule.

          (2) Compare the provision, write-offs, recoveries
              and the ending balance for the current period
              with the comparable amounts for the preceding
              audit period. Investigate significant or unusual
              fluctuations.

          (3) Test write-offs during the current period as
              follows:

              (a) Review the listing of accounts written off
                  and reconcile the totals with the amounts
                  charged to the allowance for doubtful
                  accounts.

              (b) Determine whether proper approvals were
                  obtained for selected write-offs. Scope:( )

c)   Obtain a copy of the client's aging of receivables. Test
     the aging as follows:

     i)   Test the clerical accuracy of footings and cross
          footings. Scope:(         )
     ii) Compare the aging statistics with those of prior
          periods.    Investigate      significant   trends    or
          fluctuations.
     iii) Trace the aging information for selected accounts to
          subsidiary ledgers and to supporting critical forms
          and documents (              ). Concentrate the test on
          accounts reflected as "current." Recalculate the
          aging of the account balances. Scope:(         )
     iv) Be alert for receivables that should be written off,
          under the client's criteria.

d) Have the client prepare a listing of individual large
   and/or past due receivables for specific review of their
   probable collectability. The client's evaluation of each
   receivable and subsequent cash collections should be
   indicated on the schedule. Scope:(      )

     i)  Relate the totals of individual receivables listed to
         the client's aging of receivables. Ensure that
         significant past due receivables are not omitted from
         the listing.
     ii) Trace subsequent cash receipts to the cash records
         and examine remittance advices. Scope:(         )

     iii) Identify any customers with "locked-in" receivable
          positions and consider the implications thereof.
     iv) Discuss the accounts with informed client personnel
          to obtain additional background information.
       v) If additional work is necessary to satisfy yourself
          regarding the probable collectability of an unpaid
          balance, consider the following:

            (1) Review credit and collection files and the
                debtor's or customer's financial statements.

            (2) Obtain reports of credit bureaus or credit
                reporting companies.

       vi) Identify a range of specific allowances required for
           the total individual receivables reviewed.

  e)   To provide a basis for identifying a range of general
       allowances required for receivables not individually
       reviewed above, perform the following analytical
       procedures:

       i)   Calculate the percentages of the allowance for
            doubtful accounts to total receivables and to
            receivables aged over 60 days. Compare with
            similar percentages for prior periods. Investigate
            significant fluctuations or trends.
       ii) Calculate the percentage of accounts written off to
            credit sales and average receivables for the period.
            Compare with the similar percentages for prior
            periods. Investigate significant fluctuations or
            trends.
       iii) Calculate the percentage of the provision for
            doubtful accounts to gross sales. Compare with the
            similar percentage for prior periods and with
            industry      statistics.   Investigate    significant
            fluctuations or trends.
       iv) Based upon the above percentages, the review of the
            aging and historical write-off statistics, identify a
            range of general allowances required for receivables
            not specifically reviewed above.

  f)   Summarize the results of our specific and general review
       of the collectability of receivables and determine an
       acceptable range of adequacy of the allowance for
       doubtful accounts. Adjust the identified range for other
       factors identified above that influence the collectability
       of receivables.

  g) Compare the balance of the allowance for doubtful
     accounts as of the balance sheet date with the acceptable
     range determined above. Propose an adjustment, as
     appropriate, to ensure that the allowance falls within the
     acceptable range.

5) EVALUATION   OF   THE    ADEQUACY    OF
   ALLOWANCES FOR SALES DISCOUNTS, RETURNS
   AND ALLOWANCES

  b) Review the client's current policies regarding sales
     discounts, returns and allowances. Examine selected
     sales contracts to verify return policies and terms.
     Identify changes from the prior period and evaluate the
     effect of these changes.
     c)   Have the client prepare an analysis of the allowances for
          sales discounts, returns and allowances for the current
          period. Verify the clerical accuracy of the analysis and
          test it as follows:

          i)     Cross-reference the provision for the current period
                 to the appropriate expense lead schedule.
          ii)    Compare the activity for the current period with the
                 comparable amounts for the preceding audit period.
                 Investigate significant or unusual fluctuations.
          iii)   Examine remittance advices and revenue invoices
                 for significant discounts to determine whether
                 discounts allowed are consistent with the client's
                 policies.
          iv)    Investigate credits representing sales returns or
                 discounts for amounts that appear abnormal.
          v)     Verify that sales returns and allowances have been
                 properly authorized.
          vi)    Review the accounting for the numerical sequence
                 of documents supporting goods returned by
                 customers, claims made and credit memoranda.

     d) To provide a basis for evaluating the adequacy of the
        allowances for sales discounts, returns and allowances
        perform the following analytical procedures:

          i)   Calculate the percentage of the allowances for sales
               discounts, returns and allowances to total
               receivables. Compare with similar percentages for
               prior periods and with industry statistics. Investigate
               significant fluctuations or trends.
          ii) Calculate the percentage of customer discounts,
               returns and allowances for the current period to
               gross sales. Compare with similar percentages for
               prior periods and with industry statistics. Investigate
               significant fluctuations or trends.
          iii) Relate the percentages calculated in the previous
               steps and investigate significant differences between
               them.

     e)   Inquire of knowledgeable client personnel whether there
          have been (1) problems with product design or
          production which have resulted (or are expected to
          result) in higher than normal returns and allowances or
          (2) an extension of the period covered by the right-of-
          return policy. Evaluate the magnitude of returns
          subsequent to the balance sheet date for evidence of
          production problems during the audit period.

     f)   Review significant sales returns and credit memos issued
          subsequent to the balance sheet date to determine
          whether they were properly authorized and recorded in
          the proper period.

     g) Based upon the information gathered, evaluate the
        adequacy of the allowance for sales discounts, returns
        and allowances. Propose an adjustment, as appropriate.

5)   NOTES AND LOANS RECEIVABLE
     a)   Have the client prepare a listing of notes and loans
          receivable, acceptances and other instruments
          evidencing indebtedness to the client. Test the listing as
          follows:

          i)    Test the clerical accuracy of the footings of the
                listing and trace the totals to the general ledger
                control accounts.
          ii)   Control undeposited cash receipts to the depository.
                Determine whether the deposit appears as an in-
                transit item on the bank reconciliation of the proper
                account and that it was accepted by the depository
                without material subsequent adjustment.

     b)   Trace the information on the schedule to detailed
          records, on a test basis. Scope:( )

     c)   Verify the payee, endorser, maker, principal amount,
          original date, maturity date and interest rate of selected
          notes by examining the actual notes. Examine any
          collateral. Scope:(      )

     d)   Identify notes from trade debtors or customers and
          evaluate the need for separate classification in the
          financial statements.

     e)   Consider the collectability of the unpaid balances of
          notes and loans receivable during the review of the
          adequacy of the allowance for doubtful accounts.

          i)    Discuss the origin of the balances with the client
                and evaluate the adequacy of any collateral pledged.
          ii)   Determine whether payments have been made on a
                timely basis during the period and are not past due
                at the balance sheet date.

     f)   For notes or loans receivable with terms greater than one
          year, test the classification between current and
          noncurrent. Consider classifying any notes in dispute or
          litigation entirely as noncurrent.

6)   INTERCOMPANY RECEIVABLES

     a)   Obtain an understanding of the nature of the
          intercompany receivables, including the following:

               How they arose.
               How they are being or are to be liquidated.
               What security exists.
               What the funds were used for.
               What the tax implications are.

     b)   If the transactions are other than routine transfers of
          goods and services, inspect supporting critical forms and
          documents (       ). Scope:(      )

     c)   Tie amounts to the intercompany payables reflected in
          the audit working papers for the affiliates. If the
          intercompany accounts are not in balance, have client
          personnel prepare reconciliations. Examine support for
          significant or unusual reconciling items. Propose
          adjustments for unrecorded transactions, if appropriate.

     d)   Cross-reference the balances to the elimination entry for
          consolidation.

7)   INTEREST RECEIVABLE

     a)   Have the client prepare an analysis of activity in the
          interest receivable accounts related to notes, loans or
          past due trade receivables during the period. Verify the
          clerical accuracy of the analysis and test it as follows:

          i)   Cross-reference interest income for the period to the
               appropriate lead schedule.
          ii) Compare interest income for the period and the
               period-end interest receivable balance with
               comparable amounts for the preceding period.
               Investigate significant or unusual fluctuations.
          iii) Perform a predictive test of interest income for the
               period, based on the average balance of notes, loans
               or past due trade receivables outstanding during the
               period and the average stated interest rate.
               Investigate significant differences between the
               predicted and recorded amounts.

     b)   Consider the collectability of the interest receivable
          during the review of the collectability of the related
          receivables.

8)   OTHER RECEIVABLES

     a)   Review other receivables. Consider the need to confirm
          amounts or to examine supporting documentation.
          Scope:(     )

9)   ANSWER INTERNAL CONTROL QUESTIONNAIRES (ICQ B-1
     and B-2)

10) SUPERVISION, REVIEW AND CONCLUSIONS

     a)   Conclude responsive to the audit objectives.
     b)   Prepare points regarding internal controls and other
          business matters.
     c)   Perform senior review and supervision.
     d)   Clear senior review points.
     e)   Clear manager review points.



     PERFORMED BY:                                                 REVIEWED BY:



          Audit Assistant                                              Audit Supervisor

				
DOCUMENT INFO
Shared By:
Categories:
Tags:
Stats:
views:19
posted:9/11/2012
language:Unknown
pages:7