AUDIT PROGRAMME
TRADE RECEIVABLES
Name of Client / Sheridan AVYear-end
Name of Auditor (s)
Trade receivables are shown as current assets. If genuine, they are owed by real people or real organizations. They come into existence as a result of the sale of goods or the performance of services by the company on credit.
Substantive testing should be carried out at year end on the Statement of Financial Position to gain evidence regarding the following assertions:
· Presentation and disclosure
· Accuracy classification and valuation
· Rights and Obligations
· Completeness and cut off
· Existence or Occurrence
The following substantive tests were carried out on the trade receivables showing on the Statement of Financial Position (see attached)
Audit Assertion / Audit objective / Test(s) to be carried out / Details of testing / Date and signaturePresentation and Disclosure / Trade receivables are properly identified and classified in the financial statements
Appropriate disclosures have been made about debts that have been factored or otherwise assigned / Perform analytical procedures:
Calculate ratios
Analyse ratio results
Check opening balances to previous years accounts to ensure properly brought forward
Obtain the aged list of balances
Check a sample to underlying records.
Test the list adds up. Agree the list to the control account and to the financial statements
Compare statement presentation with applicable accounting standards to determine that trade receivables are properly identified and classified in financial statements.
Is there an allowance for bad debts showing in the financial statements?
Determine appropriateness of any disclosures relating to trade payables
Accuracy, classification and valuation
Rights and Obligations / Receivables at the Statement of Financial Position date represent legal claims of the entity on customers for payment
The provision for bad debts represents a reasonable estimate of the difference between gross receivables and their net realisable value / Vouch a sample of trade receivables to supporting documentation as follows:
Vouch from list of trade receivables to suppliers invoices, goods dispatch notes and sales invoices or other supporting documentation to ensure recorded at correct amount owed.
Bad and doubtful debts –
1.Obtain a listing that breaks down the bad debt provision by debtor
2. Obtain a list of debts with balances
-over 3 months old
-in excess of their credit limit
-in hands of liquidators or receivers
Compare lists under 1 and 2 above to consider adequacy of bad debt provision. Obtain explanations for any material items that may have been omitted from bad debt provision
Obtain a list of receivables written off during year to ensure they were authorised and write off was valid
Completeness and Cut off / Trade receivables include all claims on customers at the Statement of Financial Position date / Perform cut off tests for sales and sales returns
1. Select a sample of recorded sales transactions from several days before and after year-end, and examine supporting sales invoices and dispatch notes to determine that sales were recorded in the proper period
2. Select a sample of credit memos issued after year-end, examine supporting documentation such as dated goods received notes, and determine that the returns were recorded in the proper period.
Existence or Occurrence / Receivables balances represent amounts owed by customers at the Statement of Financial Position date / Perform a trade receivables circularisation (see instructions on supplementary sheet page 4)
Where circularisation has not been carried out or unsatisfactory results obtained carry out alternative procedures (see instructions on supplementary sheet page 4)
From the audit work carried out I confirm that (*subject to the matters highlighted below) in my opinion, trade receivables are fairly stated.
Signed
Auditor
* Delete or expand as necessary
HOW TO CARRY OUT A TRADE RECEIVABLES CIRCULARISATION
1 Select a sample of accounts for confirmation from a complete list of balances
2 Confirm with client the receivables you wish to circularise. Obtain explanations where the client does not want you to circularise.
3 Send the confirmation requests. Enclose a prepaid envelope for return to the firm. Ensure that the reply part of the letter is properly referenced.
4 Record replies on a control sheet
5 Where replies are not received within a reasonable period send a follow-up letter
6 Follow alternative procedures for any accounts which have an unfavourable response or for which no response has been obtained.
7 Summarise the results and consider whether adequate audit evidence has been obtained for trade receivables.
Procedures to carry out if a trade receivables circularisation is not carried out or unsatisfactory results have been obtained
1 Examine the ledger for cash after date
2 For unpaid items inspect the sales invoices supporting them
3 Review correspondence files to determine whether any disputes exist.
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