Accounts receivable represent the assets acquired by the company through bills, promissory notes or other documents receivable from commercial operations of sales of goods or services and also not from sales of goods or services.
Therefore, the company must adequately record all movements related to these documents, as they constitute part of its assets, and above all it must control that they do not lose their formality to become money.
Hence the importance of controlling and auditing the "Accounts Receivable" The financial auditor establishes the objectives and procedures to carry out the examination foreseen in the planning of the audit of these accounts.
In this work we will show a program to audit the "Accounts Receivable", taking into account the basic objectives of this audit.
Accounts receivable concept:
Accounts Receivable are rights legitimately acquired by the company that, when the time comes to execute or exercise that right, will receive cash or any other kind of goods and services in exchange.
Based on their origin, accounts receivable can be classified as: From sales of goods or services and Not from sale of goods or services.
a) Documents Receivable:
Documents receivable are accounts receivable documented through bills, promissory notes, or other documents, exclusively from commercial operations. This account must be shown deducted from the estimates of bad debts for this concept and for the interest not accrued by the company.
b) Various Debtors (net):
Corresponds to all those accounts receivable that do not come from the commercial operations of the company, such as current accounts of the personnel or debtors of sales of fixed assets. The estimate of various bad debtors must be reduced for presentation in the balance sheet.
c) Documents and Accounts Receivable from Related Companies:
Documents and accounts receivable from related companies, discounting unearned interest that comes or not from commercial relationships and whose recovery period does not exceed one year from the date of the financial statements.
Objectives of the accounts receivable audit:
- Check if the accounts receivable are authentic and if they originate in sales operations Check if the registered values are effectively realizable (collectible in pesos) Check if these values correspond to transactions and if there are no returns, discounts or any other element that should be considered. Check if there is a permanent valuation –with respect to interest and readjustments- of the amount of accounts receivable for balance sheet purposes. Check the existence of bad debtors and their accounting calculation method.
Accounts receivable audit procedures:
Regarding Internal Control.
Credit analysis is dedicated to the collection and evaluation of credit information of applicants to determine if they are up to the credit standards of the company.
1. Verify the existence and application of a policy for the management of accounts receivable.
2. Determine the efficiency of the policy for managing accounts receivable.
3. Verify that the accounts receivable supports are in order and in accordance with the legal provisions.
4. Observe if movements in accounts receivable are properly recorded.
5. Check that there is a complete control system for accounts receivable, updated and appropriate to the conditions of the company.
6. Check that changes to accounts receivable are properly authorized by the appropriate person.
8. Verify that the accounts receivable are adequately supported.
9. Check that accounts receivable are current and that security measures are applied correctly (example: check insurer)
10. Verify the existence of a manual of functions of the personnel in charge of managing accounts receivable. As well as the knowledge and fulfillment of this by clients and debtors.
11. Control the cash received from suppliers.
12. Make offsets of accounts payable against accounts receivable.
13. Control debit and credit notes (by volume of purchases, etc).
14. Maintain voided checks with a non-payment order, returned and reissued.
Procedures:
1. Physically verify together with the person responsible for the accounts receivable the documents that support the receivables.
2. Physically check the existence of titles, checks, letters and documents receivable and investigate any irregularities.
3. Physically verify the existence of titles in related companies.
4. Compare the result of the physical check with the higher of Investments in Related Companies.
5. Verify with the financial statements of the related companies if the amount of the profits to be distributed corresponds to the documents receivable from related companies.
6. Verify that the data of the debtors are correct, name, RUT, home and work address, etc.
7. Check the validity of the documents, that is, that the documents are legalized with signature, stamp and stamps, before a Notary.
8. Verify data of the guarantees if they exist, name, RUT, address, etc.
9. Verify that the guarantees, if any, have duly signed the documents.
10. Check the history of all documents receivable, if they have been sent to a notary, banks and financial institutions (such as factoring, for example).
11. Verify which accounts receivable have been canceled in a timely manner, with arrears, or if they have not been paid or protested.
12. Examine the authorizations for the sale that originated the respective document receivable.
13. Examine the bill of sale that originated the document receivable, check that the values and terms correspond and see if they coincide.
14. Examine customer invoices, as well as other supporting documents for accounts receivable.
15. Select a number of documents receivable from customers and / or other debtors and check the entries of those in the accounting records.
16. Analyze this item and reconcile its balance with the highest of Clients, Documents Receivable, Various Debtors and Documents and Accounts receivable from related companies.
17. Check that there are records of debts to the company of the company's own workers.
18. Verify that there is an invoice or ticket for workers who are debtors of the company.
19. Verify that the amounts collected for interest have been properly calculated.
20. If there are leases receivable, verify that the respective lease exists and if the amount coincides with the rental fee.
21. In the event that there are claims receivable from insurance companies, verify the conditions of the policy and the amount insured in the event of a specific claim.
22. Verify if there are accounts receivable from suppliers.
It refers to cases in which, after having made a purchase of merchandise and having paid for it, such merchandise was defective or arrived with a missing item, and the supplier will address the claim by means of a credit note.
23. Verify the credit notes issued by the supplier and see if they match the documents that support the return.
24. Verify if there are deposits in guarantee for the fulfillment of contracts, for example when the company is contracted to carry out any work or provide a certain service, and the contractor demands that a guaranteed deposit be made that the objective of such contract will be fulfilled.
25. Check that the reimbursed amount corresponds to the guarantee mentioned in the previous point.
26. Check if there are accounts receivable from shareholders. Any debt that the shareholders have contracted with the company for concepts other than what they still owe on the capital they subscribed is recorded in this account.
27. Verify if there are advances to suppliers. On some occasions, a company finds it necessary to make an advance on account to guarantee the supply of merchandise or the provision of the service.
Therefore, this company has a right that will be charged at the time the merchandise or service that has been purchased is received.
28. Check that the amount received on account of advances to suppliers corresponds to the documents that support this situation.
Regarding Bad Debtors
1. Verify the physical location of uncollectible documents.
2. Review the documents or records of the uncollectible documents to verify that all instances were used to collect them.
3. Verify that the appropriate method has been used in calculating the estimate of bad debts.
4. Check if the basis for the estimate complies with the legal provisions.
5. Review the Bad Debt Estimate account in the Ledger.
6. Verify that adjustments to the bad debts account for inflation and / or monetary correction are calculated and recorded.
7. Verify if there have been bad debtors that have come forward to cancel a debt.
8. Check that this situation appears in the accounting records.
conclusion
Regarding receivables, it is important to keep in mind never to lose sight of their physical existence as well as to verify their formality to ensure that they can really be converted into money.
The program that we have shown contains tests that vary according to each professional responsible for the Audit, because according to the application of these the Auditor will base his opinion in relation to the real situation of the company.
