b. c.

a. TESTS OF DETAILS OF
BALANCE- PREVENTIVE BALANCES AUDIT
RELATED AUDIT INTERNAL CONTROL PROCEDURES
OBJECTIVE What client should do What auditor should do
1. accuracy scan the remittance note any replies to the
advice returned with confirmation of accounts
the customer payment receivable which indicate
electronically rather disputes between a customer
than manually entering and client.
the customer number.
2. cutoff establish cutoff Examine shipping documents
procedures so that only for sales recorded immediately
shipments made before before and after year-end to
year-end are recorded test whether sales are
as current period sales. recorded in the proper period.
3. realizable value perform an analysis of keep informed of current
the collectibility of economic conditions and
accounts receivable at consider their effect on
the end of the year and collectibility of accounts
should communicate receivable for the client.
with its customers to compare cash receipts after
determine the likelihood year-end to the cash receipts
of the collectibility of of the similar period of the
individual accounts. previous year and consider any
changes as to their effect on
the collectibility of the accounts
receivable.
4. accuracy record claims for note any replies to the
defective merchandise confirmation of accounts
as soon as possible receivable which indicate
after the claim is disputes between a customer
received to keep and client.
accounts receivable review the client’s
balances as accurate correspondence files from
as possible. customers.
5. rights and maintain a schedule standard bank confirmation
obligations containing all required should contain an inquiry as to
(also disclosure information, assets pledged for loans from
presentation and including pledging or that institution.
disclosure). other restrictions on When loan confirmations are sent
accounts receivable. by the auditor, they should
contain an inquiry as to any
assets pledged for the
indebtedness.
6. cutoff establish cutoff Examine receiving reports for
procedures so that sales returns recorded
sales returns received immediately before and after
in the current period year-end to test whether sales
are recorded as current returns are recorded in the
period sales returns. proper period.
perform an analytical test to
determine whether or not
returns in the first month of the
next year are similar in
magnitude to those experienced
in the same period of previous
years.
7. completeness The accounts receivable Foot the aged trial balance and
master file should be compare the total to the general
reconciled to the ledger.
control account Trace a sample of accounts from
periodically by an the master file to the aged trial
independent person. balance to determine if all are
included.
8. existence The accounts receivable Foot the aged trial balance and
master file should be compare the total to the general
reconciled to the ledger.
control account Trace from the aged trial balance
periodically by an to the master file, looking for
independent person. duplicates.
9. classification maintain separate review the trial balance of
accounts for the accounts receivable to
recording of determine whether or not
receivables due from accounts from affiliated
affiliated companies. companies are included in the
customer accounts.
be aware of affiliated companies
and the transactions between
them and the client, and should
inquire and follow up to
determine that accounts
receivable from affiliates are not
included in the accounts
receivable from customers.