It represents the balance owed by customers for products sold or services rendered.
Share on Facebook Accounts receivable is part of the "current assets" section on a company's balance sheet. It represents the balance owed by customers for products sold or services rendered. For small businesses that sell on credit, this account can represent a large portion of its current assets.
In many companies, individual transactions are small and frequent.
As such, there is ample opportunity for errors in prices and dates that could leave accounts receivable misstated. Audits can help clear up these errors.
Auditors typically follow a standard set of procedures when it comes to auditing accounts receivable. Confirmation The most common audit procedure involving the accounts receivable balance is confirmation.
To test that accounts receivable exist, the auditor will send letters to a sample of the client's customers asking to verify the amount that is owed to the company being audited. The customer is then asked to return the letter to verify the balance. Small business owners should be aware that the auditor must send and receive confirmation letters under the auditor's own control.
The auditor will ask you to prepare the letter, but he will be responsible for delivery and receipt. Subsequent Cash Reciepts For confirmation requests that are not returned by customers, auditors must perform alternative procedures to verify the accounts receivable balance.
To do so, the auditor will request proof that the customer balances selected for confirmation have been paid since the company's fiscal year end.
This will require the client to provide bank records showing the receipt of payment. If the balances have not yet been paid by the customer, the auditor might be forced to contact the customer and verify the balance over the phone.
Allowance Testing Generally accepted accounting principles GAAP require that the accounts receivable balance is shown "net" on the balance sheet. This means that accounts receivable should be reduced by an allowance for accounts that are deemed to be uncollectible.
Under accrual accounting, this requires the client to make an estimate of the current dollar amount of debt that will ultimately remain uncollected. The auditor will review this estimate, usually with respect to historical trends, and determine if the amount is reasonable.
Small business owners can make this process go smoothly by ensuring that they employ a consistent methodology when assessing bad debt from year to year. Or, if the company changes methodology, it should be able to justify the change.Steps In Confirmation Process The steps in the process of confirming receivables follow: Step Obtain Aged Schedule of Accounts Receivable The auditor should obtain an aged schedule of accounts receivable as of the confirmation date.
He or she should apply the following procedures to this schedule: Determine that totals are correct. Confirmation of accounts receivable, including a financial institution’s loans, is a generally accepted auditing procedure.
It is therefore presumed that the auditor will request the confirmation of accounts receivable during an audit.
In general, auditor uses confirmation process to obtain sufficient competent evidential matter. Steps In Confirmation Process The steps in the process of confirming receivables follow: Step-1 - Confirmation Procedure of Account Receivable Essay introduction. Obtain Aged Schedule of Accounts Receivable The auditor should obtain an aged schedule of .
Here are some of the accounts receivable audit procedures that they may follow: Trace receivable report to general ledger. The auditors will ask for a period-end accounts receivable aging report, from which they trace the grand total to the amount in the accounts receivable account in the general ledger.
Confirmation of accounts receivable has been a nearly sacrosanct auditing procedure for over 50 years. Before most of todays practicing CPAs were even born, the AICPA issued Statement on Auditing Procedure no.
1, Extensions of Auditing Procedure, requiring auditors to confirm accounts receivable whenever they were material to the financial .
Confirmation The most common audit procedure involving the accounts receivable balance is confirmation. To test that accounts receivable exist, the auditor will send letters to a sample of the client's customers asking to verify the amount that is owed to the company being audited.