1 VERIFICATION OF YEAR END DEBTORS/RECEEIVABLES

Audit objectives
The audit objectives are to verify management assertions:
Existence
Ownership
Completeness
Valuation
Presentation
isclosure
Audit pror!""e
Existence
! the list of trade debtors"receivables will be obtained and its extraction to !#d $ro"
the ledger tested #to the ledger will test for !ccur!te extraction of balances $ro" the
ledger to the list will test for co"p%ete extraction$
% the ledger accounts will be tested for arithmetic and totals of the ledger and the
listing will be chec&ed
' the list total will be reconciled with the control account and any differences
investigated for cause
( all credit balances will be investigated ) these could be due to overpayments*
duplications of payments* returns for which credit notes have been issued* missing
or unrecorded invoices ) and where material should be included in
creditors"liabilities in the balance sheet
+ cut,off will be tested by tracing dispatch notes issued before the year,end and after
the year,end to sales invoices raised to ensure the invoices have been recorded in the
current period
Ownership rights
- a debtors. circulari/ation will be performed to obt!i# i#depe#de#t co#$ir"!tio#
$ro" custo"ers o$ t&e v!%idit' o$ recorded debts (see 1)* below+
Valuation
0 a list of overdue debtors or an aged analysis of debtors will be obtained and their
extraction to and from the ledger tested for accuracy and completeness
a$ the list of speci$ic b!d debts provisio#s will be chec&ed to ensure all
overdue debts are included ) if not* their subse1uent receipt will be chec&ed
in the post balance sheet cash boo&
b$ The reasonableness and consistency of the formula used for e#er!%
provisio#s will be chec&ed and the provision recomputed to ensure it is on net
debtors after specific provision
2 net debtors will be chec&ed to ensure they are included in the balance sheet under
3current assets4
Disclosure
5 where specific bad debts are written off and are material* their separate disclosure
will be chec&ed as e,ceptio#!% ite"s in the profit and loss account"income
statement
!6 analytical procedures on debtors and sales should be performed for overall
reasonableness # for example* a comparison will be made of gross profit percentages
for the current year with the previous year: further a comparison of the number of
days credit ta&en this year would be made with the previous year$
Circu%!ri-!tio# o$ Debtors
This is a st!#d!rd !udit procedure per ISA ./. 0E,ter#!% co#$ir"!tio#1
T&e objective is to obt!i# i#depe#de#t co#$ir"!tio# o$ recorded debts i# t&e
c%ie#t2s %eder
Evidence obtained from the circulari/ation has a greater deree o$ re%i!bi%it'
since it is external evidence less susceptible to client management influence
The client.s per"issio# must be obtained #since confidential information is
involved$
7f circulari/ation is not performed* it must be justified #e8g8 causing upset to
certain customers9 global debtors unli&ely to reply$
:here the responses to a circulari/ation are poor* alternative procedures must be
performed to prove the validity of recorded debts
It is !# esse#ti!% procedure 3&ere4
, systems and controls are wea& #i8e8 internal records cannot be
relied upon$
, fraud is suspected
, records have been destroyed and reconstruction is necessary
1)*)1 5rocedures #which can be performed on an interim audit$

reconcile receivables"sales ledger balances with control account
select sample of debtors for circulari/ation from:
, large balances
, medium balances
, small balances
, /ero balances
, credit balances
, or stratify debtors
E8g8 balances ;6 ) +*666 ;+*66! ) !6*666 ;!6*66! ) !+*666 etc
<umbers
Value

The main sample would be chosen from the stratum showing largest
number and greatest value
Str!ti$ic!tio#6 t&ere$ore is ! "e!#s b' 3&ic& ! s!"p%e is se%ected
3&ic& e#sures t&e "ore "!teri!% b!%!#ces st!#d t&e re!test c&!#ces
o$ se%ectio#

chec& customer details
decide on method of circulari/ation :
i8 #e!tive "et&od #i8e8 3reply only if balance not agreed4$
, should only be used where systems are strong
, circulari/ation is merely to obtain additional assurance
ii8 positive "et&od # i8e8 3reply in any event4$
This can either be
, ! re7uest to co#$ir" or ot&er3ise ! st!ted b!%!#ce6 or
, ! re7uest to supp%' t&e b!%!#ce t&e custo"er t&i#8s &e o3es
, supp%'i# $u%% !ccou#t det!i%s i#c%udi# b!%!#ce re7uesti#
information
type the letter on the client.s notepaper including a stamped addressed envelope
to t&e !uditor and supervise posting
analy/e replies and investigate disputed balances9 these could be:
items in transit #Cash and =><? balances$
indications of dispute sales re1uiring adjustments to sales and receivables
inventories
indications of fraud
<on replies should be followed up a second letter # where fraud is suspected *
consider phoning or fixing$
>naly/e results and record in wor&ing papers e8g8
Total value of debtors @@@@@@A
Total number of debtors@@@@@@x
ebtors circulari/ed@@@@@88
Value @@@@@@@@@88Bx C
<umber@@@@@@@@@88x C
Deplies confirming x C
Deplies disputed x C
<on replies x C
Co#c%usio#s
5RE5AY9ENTS
Prepayments commonly include bills paid in advance such as insurance
payments* rates* rents receivables etc
They are usually not material in relation to other figures in the financial
statements and would be considered a low ris& area
7n conse1uence * it is usual to use analytical procedures as a substantive test to
verify these figures in total
> schedule of prepayments would be obtained * computations and additions
chec&ed and comparison made with the prior years prepayments as a test of
reasonable ness and completeness
Deference can be made if considered necessary to supporting invoices to tst by
re,computation
Prepayments could include certain material figures, for example deposits for
capital assets ordered but which have not been delivered8 Euch amounts should
be verified by reference to cash boo& payments and any sales agreements or
contracts signed8