What are the Audit Procedures for Accounts Receivable?
Introduction to Audit Procedures
Audit procedures are crucial to audit engagement for the auditors from accounting service in Singapore to evaluate the legality and accuracy of transactions and balances. These procedures lead the auditors to test the transactions and balances in different ways.
Audit procedures (Audit Procedures – Its Methods, Benefits and Restrictions) are unique for each distinct customer, and the auditors should design it according to the risks related to the customer as well as the accounting heads in the customer’s financial statements. The auditors may apply a variety of procedures to achieve the audit objectives that they desire. Besides, these procedures help in determining the misstatements, which happen as a result of error or fraud.
Introduction to Accounts Receivable
Accounts receivable is an asset balance account where the company will refurbish the amounts that its customers owe it. Once it has rendered the goods or services to its clients, the company will update the invoiced amounts in its general ledger.
In general ledger, the company will update the accounts receivables with every non-cash deal between it and its client. This implies that the company has provided the goods or services to its clients, although the clients have not paid or they have only paid it partially.
When the company accumulate these amounts until the end of the year, it results in a large sum, and the company will import the amount into its financial statements (Also see What Investors Want To See In Your Financial Statements?).
The company will receive the balances of accounts receivables from its customer in the upcoming periods. When the company thinks that it is no longer possible for it to receive some of the amounts, it will expense (Also see Accounting for Expenses) them from the total amount.
When the auditors are performing an audit (Also see How to Ensure Your Company’s Audit Process Goes Smoothly?) , testing for audit assertions is one of the essential parts of the audit. Each assertion possesses its risk of material misstatements. Listed below are the risks that are present in the assertions and the ways that the auditors can solve them.
In accounts receivables, the audit of existence indicates that the auditors need to confirm whether these balances really exist. The auditors will assess the accounts receivables after splitting them up by using the lists of customers and verify them by sending verifications to the clients of the company directly.
- Rights and Obligations:
The auditors do not have to worry too much about the rights of the company’s accounts receivables. Nonetheless, some big firms may transfer their accounts receivables to a factor, and the factor will collect the receivables on their behalf for a discount. Hence, the auditors will inspect the transfer of rights by the firm to the factoring company.
To reduce tax liability, a company may purposely miss out part of the receivable’s balances for its sales. Such a situation weakens the assertion for completeness.
If the auditors want to validate these balances, they can send blank confirmations, which is a letter that requests the recipient to fill out the sum of the balance of the accounts receivable, to their clients. They may also test the cash receipts that may be relevant to the sales of the current year at the end of the year.
This assertion is rather simple where the auditors will perform recalculation to evaluate whether the amounts of the accounts receivables is accurate. Misstatements might take happen as a result of human errors, where one may sum up an extra balance or skip some amounts accidentally.
The presentation indicates that the company has disclosed major issues that occur in its accounts receivables. For example, the company has recorded an expense of a large balance in its accounts receivables as that amount has become uncollectable.