Receivable Audit Risks:

 Receivables do not exist

 Recorded receivable balances are inaccurate

 It may not be possible to collect accounts receivable

 The derivation of the allowance for doubtful accounts may not properly reflect bad
debt experience

 Loans & Advances transactions were not processed in the correct periods

 Revenue was incorrectly recognized

Audit procedures on Accounts receivables:

Audit procedures are applied to the accounts receivables balances to test their assertions. Testing
these assertions includes verifying their existence, rights, and obligations, completeness, accuracy,
classification, and presentation.

Existence:

The audit of existence in accounts receivables means verifying the actual existence of these
balances. The auditor will analyze the breakup of accounts receivables by customer’s listings and
confirming them by sending direct confirmations to customers.

Rights and obligations:

There is not a big reason to worry about the rights of the accounts receivables of the company.
However, in some major companies, the accounts receivables are transferred to a factor to collect
them on behalf of the company for a discount.

Completeness:

It is possible that the company for the sake of reducing tax liability, intentionally missed out some
receivables balances for the sales made. This compromises the completeness assertion.

The auditor can confirm these balances by sending blank confirmations to customers along with
testing the cash receipts after the year-end which may relate to the sales made in the current year.

Accuracy:

Accuracy is a simple assertion in which the auditor performs the recalculation procedures to test the
accuracy of the accounts receivables. Misstatements may occur because of human errors by skipping
or summing up extra balances.

Presentation:

Presentation means disclosing the major issues in the accounts receivables such as a large balance in
the accounts receivables has gone uncollectable which the company needs to expense out. The
auditor needs to check the extent of disclosures made in notes to the financial statements.

Other Procedures:
  Matching opening balances of accounts receivables to last year’s closing balances.
 Applying analytical procedures to find any unusual differences and reasons behind them.
 Obtaining receivables ageing report from the client and matching the figures to accounts
receivables general ledger.
 Recalculating the figures of accounts receivables general ledger to confirm the accuracy.
 Verification of invoices against the supporting documentation to verify that correct postings
are carried out in the general ledger.
 Verifying the sales period by inspecting the shipment documents of those sales.
 Verifying completeness and existence by sending direct confirmations to debtors.
 Reviewing the company’s policy for allowance for doubtful debts and applying it to the
receivables balances.
 Comparing general ledger balances to actual receivables listings and checking their accuracy.
 Analyse that the necessary disclosures for bad debts and other significant events are
correctly presented in the notes to the financial statements.
 Applying cut off procedures to verify that amounts recorded in the current year do not relate
to other periods.

Inherent risk:

primary risk involved in the accounts receivables balances is that the organization has not expensed
out the amounts of the bad debts in the receivable’s balances, which they acknowledge cannot be
recovered anymore.