AUDIT VERIFICATION – RECEIVABLES AND CASH & BANK

AUDIT VERIFICATION – RECEIVABLES AND CASH & BANK

CHAPTER OBJECTIVE

1. THE AUDIT OF RECEIVABLES
2. THE AUDIT OF BANK
3. THE AUDIT OF CASH BALANCES

1. THE AUDIT OF RECEIVABLES

In order to verify the figure in the financial statements for receivables the auditor would perform a number of substantive procedures as outlined below.
Control account:
List of receivable balance in the sales ledger agree the total with control account.
Year end receivable account balance:
 Aged debt listing and overdue debts ( allowance for doubtful debts)
 Check the authorisation for debt written off
 Contra entries should be made to net off to avoid overstating both assets and liabilities.
 Check that the balance are made up of specific invoices
 Direct confirmation/ circularisation
 Review the individual accounts of major customers.
 Review and test the year end cut-off procedures.

Analytical Procedure:
 A comparison of receivable days ratio= ( receivables/sales) x 365 with budget and /or prior years, also with similar companies.
 A comparison of the proportion of the debts in different age band to prior years.
Old debts may indicate either poor or deteriorating economic condition or credit control.
Irrecoverable Debts:
 Audit procedures includes as follows.
 Previous irrecoverable debt experiences
 Receivables’ circularisation/confirmation
 Aged analysis of receivable
 Events after the reporting period
Returns inwards and Credit Notes:
From an audit point of view the major problems is likely to be the issue of a substantial volume of credit notes after the year end.

2.THE AUDIT OF BANK

Direct confirmation letter (bank certificate):
A bank certificate is a standard request letter sent by the auditor to the bank requesting details of the client’s financial arrangements managed by the bank.
Bank Reconciliation:
Check reconciliation between cash book figure and bank statement figure (confirmed by the bank).
Balance per cash book……………………..12,345.22
Add unpresented cheques………………. 223.46
Less outstanding lodgements………… (16.34)
Difference………………………………………. 1.34
Balance per bank statement……………$12,553.68

3.THE AUDIT OF CASH BALANCES

Cash balance more material, standard audit procedures would include:
 Attendance at a cash count or perform a surprise cash count
 If cash is held at more than one location, all cash at all locations should be counted simultaneously
 Auditor should agree the cash balance with figure in the accounting records.

Source:

1. Kaplan, FAU
2. Phnom Penh HR