Content area
Full Text
Abstract
The overall objective of the audit of accounts receivable and sales is to determine if they are fairly presented in the context of the financial statements as a whole. The sales account is closely tied to accounts receivable; therefore, evidence supporting accounts receivable tends to support sales. For example, having determined that an account receivable is valid, the auditor has thereby supported the validity of the sale.
Analytical procedures can often be used to test the sales account. An unusual relationship detected in the audit of receivables and inventory may reflect a problem for the reported sales figure as well
Keywords: audit, procedures, receivable, sales
JEL classification: M42
An effective and efficient audit approach for sales usually is to limit the testing in this area to analytical procedures. See the discussion titled "Analytical Review Procedures" later in this chapter.
The table below summarizes specific audit objectives related to financial statement assertions for accounts receivable and identifies common, but not all inclusive, substantive audit procedures that accomplish these objectives.
Reconciling the Aged Subsidiary Ledger of Individual Accounts to the General Ledger
The first step in auditing accounts receivable is to reconcile the aged subsidiary ledger of individual accounts to the general ledger control account. This is ordinarily done before any other tests to assure the auditor that the population being tested agrees with the general ledger. In addition, the auditor traces a sample of individual balances to supporting documents, such as duplicate sales invoices, to verify the customer name, balance, and proper aging.
Confirmation of Accounts Receivable
The Confirmation Process states that the confirmation of accounts receivable is a generally accepted auditing procedure and should be performed in all audit engagements, except under one or more of the following circumstances:
1. The accounts receivable balance is immaterial to the financial statements.
2. It is expected that the use of confirmations would be ineffective.
3. The auditor's combined assessed level of inherent risk and control risk is low, and the assessed level, in conjunction with the evidence expected to be provided by analytical procedures or other substantive tests of details, is sufficient to reduce audit risk to an acceptably low level for the applicable financial statement assertions.
Although the confirmation of accounts receivable is not...