Audit of Receivables.pptx

Audit of Assets

1. GROUP 3 PRESENTORS AUDIT OF RECEIVABLES

2. Topic Outline Primary substantive procedures for receivables, sales and related accounts. Introduction to audit of receivables, sales and related accounts; Audit objectives for receivables , sales and related accounts; and

3. Introduction The audit of receivables and revenue represents significant risk ...

4. WHY REPRESENT SIGNIFICANT RISK? Many incidences of financial statement fraud have involved in the overstatement of receivables and revenue.

5. WHY REPRESENT SIGNIFICANT RISK? Revenue recognition may be based on complex accounting rules .

6. WHY REPRESENT SIGNIFICANT RISK? Receivables and revenue are usually subject to valuation using significant accounting estimates .

7. IMPORTANT NOTE! Before performing the substantive testing in any account, always reconcile first the amount in the trial balance/unaudited FS versus the amount in the General Ledger or GL/SL reconciliation (if applicable).

8. Audit Objectives for Receivables and Sales

9. A AO ASSERTION AUDIT OBJECTIVES I. EXISTENCE All receivables on the statement of financial position are authentic claims of the entity and all sales have really occurred and pertain to the entity.

10. A AO ASSERTION AUDIT OBJECTIVES II. COMPLETENESS All authentic claims of the entity for amounts of receivables are included on the statement of financial position and all sales have been included in the statement of comprehensive income .

11. A AO ASSERTION AUDIT OBJECTIVES III. CUT-OFF IV. VALUATION AND ALLOCATION Sales have been recorded in the proper accounting period . Receivables are carried at their net realizable (collectible value) .

12. A AO ASSERTION AUDIT OBJECTIVES V. ACURACY Sales have been accurately recorded in the statement of comprehensive income .

13. A AO ASSERTION AUDIT OBJECTIVES VI. RIGHTS AND OBLIGATIONS The entity owns, or has a legal right to all the receivables on the statement of financial position at the reporting date.

14. A AO ASSERTION AUDIT OBJECTIVES VII. PRESENTATION AND DISCLOSURE Receivables and sales are properly classified, described, and disclosed in the financial statements, including notes, in accordance with the PFRS.

15. Primary Substantive Test/ Audit Procedures for Receivables and Sales

16. Audit Procedures Reconciliation of subsidiary ledger with the general ledger Confirming receivables and reviewing subsequent cash receipts

17. Audit Procedures Analyzing notes receiva ble and related interest Evaluating the adequacy of the allowance for doubtful accounts, including the appropriateness of its methodology

18. Audit Procedures Performing accounts receivable and sales cutoff Checking the appropriate valuation of accounts receivable denominated in foreign currencies

19. Audit Procedures Investigating any transactions with or related party receivables Analyzing credit balances and unusual items

20. Audit Procedures Ascertaining whether any receivables have been pledged or assigned Performing analytical procedures

21. Audit Procedures Procedures to asses the reasonableness of reported cash.

22. Illustration #1 An aging of Maligaya Company’s accounts receivable on December 31, 2022, reveals the following information:

23. TIME OUTSTANDING AMOUNT OF ACCOUNTS RECEIVABLE Under 30 days P80,000 30-60 days 16,000 61-120 days 12,000 121-180 days 8,000 Over 180 days 4,000 Total P120,000

24. Illustration #1 Based on past experience, the company believes that the following uncollectible percentages are appropriate:

25. Illustration #1 Under 30 days, 1.5%; 30-60 days, 3%; 61-120 days, 15%; 121-180 days, 30%; and over 180 days, 60%.

26. Illustration #1 Using the aging of accounts receivable variation of the balance sheet approach, prepare the adjusting entry on December 31, 2022 to record estimated bad debts.

27. Illustration #1 Assuming that the balance in the Allowance for Doubtful Accounts before adjustment is: a.) P440 credit; b.) P560 debit

28. Illustration #2 You were engaged to audit the books of accounts of A. Bonifacio Contractors which had a 3-year construction contract in 2022 for P900,000.

29. Illustration #2 A. Bonifacio uses percentage-of-cost-completion method for financial statement purposes. Income to be recognized each

30. Thank you ! Thank you !