AUDIT PROGRAM FOR ACCOUNTS RECEIVABLE AND SALES
CLIENT NAME:
DATE OF FINANCIAL STATEMENTS:
III. ACCOUNTS RECEIVABLE AND SALES
Audit Objectives
A. Receivables reflected in the balance sheet
exist, are for valid transactions, and include
all authentic obligations of third parties to the
entity.
Financial Statement Assertions
Existence or occurrence
Completeness
Rights and obligations
B. Billings are for the correct amount and
uncollectible accounts are promptly
identified and provided for. The allowance
for uncollectible accounts is adequate.
Existence or occurrence
Valuation or allocation
C. Receivables are properly classified in the
balance sheet between current and
noncurrent assets and disclosures are
adequate with respect to assigned, pledged,
unbilled, discounted and related-party
receivables, and transfers of receivables.
Presentation and disclosure
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a. Compare the current year’s account balances with the
prior year’s account balances for gross receivables;
allowance for doubtful accounts; bad debts; and sales
returns and allowances.
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b. Compare monthly sales by product line for the current
year with monthly sales for the prior year and the first
few months subsequent to year end.
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c. Compare monthly sales returns and allowances and
credit memos for the current year with those of the
prior year and the first few months subsequent to year
end.
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1. Perform the following analytical procedures for accounts
receivable and investigate any significant fluctuations or
deviations from the expected balances [A, B, C]:
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d. Compare the aging categories (e.g., 0-30 days; 31-60
days, etc.) of the current year’s accounts receivable
with the prior year’s and/or industry data.
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e. Compute the following ratios for the current year and
compare with the prior year’s ratios and/or industry
data (see sample workpaper “A/R Analytical
Procedures” at Section IV, Item AD-3):
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(1) Accounts receivable turnover.
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(2) Days sales in accounts receivable.
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(3) Ratio of allowance for uncollectible accounts to
gross accounts receivable and credit sales.
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(4) Ratio of write-offs to credit sales.
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(5) Ratio of sales returns and allowances to credit
sales.
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(6) Ratio of customer discounts to credit sales.
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(7) Ratio of gross profit to credit sales, in total and by
major product or division.
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2. Prepare or obtain from the client an aged trial balance of
trade accounts receivable and perform the following [A]:
a. Test the arithmetical accuracy of the aged trial balance
and the aging categories therein.
b. Reconcile the total balance to the general ledger
control account balance (see sample workpaper “A/R
Reconciliation to General Ledger” at Section IV, Item
AD-5).
c. Note and investigate any unusual entries.
d. Summarize the total of credit balances and make
appropriate reclassification entry, if material.
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e. On a selective basis, trace individual account balances
in the aged trial balance to individual subsidiary
ledgers and vice versa.
f. Determine which accounts receivable should be
confirmed. The auditor may wish to use the form titled
“Audit Sampling Worksheet for Substantive Tests” at
Section III (FOR09), to determine which accounts
receivable balances should be confirmed.
3. Select customer accounts from the aged trial balance for
confirmation procedures and perform the following (see
sample confirmation requests at Section II [COR07],
[COR08], and [COR09]) [A]:
a. Arrange for confirmation requests to be mailed
directly by the auditor and maintain control over the
confirmation process at all times. (See sample
workpaper “A/R Confirmation Control Summary” at
Section IV, Item AD-1.)
b. Trace balances included in individual confirmation
requests to subsidiary accounts.
c. Mail confirmations using envelopes with the auditor’s
return address.
d. If the client requests exemption from confirmation for
any accounts selected by the auditor, obtain and
document satisfactory explanation, and determine
necessity for alternative procedures.
e. Obtain new addresses for confirmations returned by
the post office as undeliverable, and remail.
f. Send second requests for positive confirmations on
which there is no reply and consider registered or
certified mail for second requests.
4. Process the confirmation replies and summarize the results
of confirmation procedures as follows (see sample
workpaper “A/R Confirmation Results Summary” at
Section IV, Item AD-2) [A, B]:
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a. For positive confirmation requests to which no reply
was received and accounts exempted from
confirmation at the client’s request, perform
alternative procedures for those customers by
examining cash receipts subsequent to the
confirmation date and, if no cash has been received, by
examining sales invoices and corresponding shipping
documents (see sample workpaper “A/R Alternative
Procedures and Review for Uncollectibles” at Section
IV, Item AD-6).
b. Indicate the total accounts and balances confirmed
without exceptions, confirmations reconciled, and
nonreplies or exempted accounts with alternative
procedures performed.
5. For accounts receivable confirmed on a date other than the
balance-sheet date, prepare or obtain from the client an
analysis of transactions (e.g., cash receipts, sales) between
the confirmation date and the balance-sheet date, and
perform the following (see sample workpaper “A/R
Rollforward from Confirmation Date to Balance-Sheet
Date” at Section IV, Item AD-4) [A]:
a. Trace the balance as of the confirmation date to the
aged trial balance.
b. Trace cash received per the analysis to the cash
receipts journal and/or bank statements.
c. Trace sales/revenue amounts per the analysis to the
sales/revenue journal.
d. Determine the reasonableness and propriety of any
other reconciling items.
e. Trace the ending balance per the analysis to the trial
balance as of the balance-sheet date.
f. Scan the accounts receivable and sales activity during
the period from the interim date to the balance-sheet
date and investigate any unusual activity.
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6. Prepare or obtain from the client an analysis of trade notes
receivable, showing the following: (a) maker, (b) date note
issued and due, (c) original terms of repayment, (d)
collateral, (e) interest rate, (f) principal balance at the end
of the prior period, (g) principal additions and repayments
in the current period, (h) principal balance at the end of
the current period, (i) accrued interest receivable at the
end of the prior period, (j) interest earned and interest
received in the current period, and (k) accrued interest
receivable at the end of the current period, and perform
the following (see sample workpaper “Notes Receivable
Analysis” at Section IV, Item AE-1.) [A, B, C]:
a. Test the arithmetical accuracy of the analysis.
b. Trace totals to the general ledger.
c. Examine copies of the notes.
d. Determine whether positive confirmation requests are
necessary and, if so, perform procedures as outlined in
Steps 2 and 3 above.
e. Determine the type of collateral for the notes.
f. Recompute interest income and accrual.
g. Trace interest collections to the cash receipts journal,
if material.
7. Determine whether any accounts or notes receivable have
been pledged, assigned, or discounted [A, C].
8. Determine whether any accounts or notes receivable are
owed by employees or related parties and, if so, perform
the following [A, B, C]:
a. Determine the nature and purpose of the transaction
that resulted in the receivable balance.
b. Determine whether transactions were properly
executed and approved by an official of the company
or the board of directors.
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c. Consider obtaining positive confirmation requests of
such balances.
d. Evaluate the collectibility of the balances outstanding.
9. For notes and accounts receivable with maturities greater
than one year, perform the following [A, B, C]:
a. Evaluate if the principal and interest payments will be
collected in accordance with their contractual terms.
b. If either interest or principal payments will not be
collected in accordance with their contractual terms,
determine whether an allowance for credit loss has
been computed.
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