Discuss the best audit procedures for an audit of accounts receivable.
Discussion topic:
1. An audit program relates to the cash, sales and receivables cycles and accounts.
Discuss the best audit procedures for an audit of accounts receivable. What types of fraud can be committed using accounts receivable? How can we look for them?
How would your current employer or a previous employer do if their accounts receivable were audited? are monthly bank reconciliations done?
Student Post
2. When considering an audit of accounts receivable there are a few different procedures that can happen. Accounts receivable are typically the largest assets that a company has so there is more time spent on these accounts to make sure that the amounts stated are reasonable. Some of the procedures that can take place for an audit of accounts receivable is trace receivable reports to general ledger, calculate the receivable report total, investigate reconciling items, test invoices listed in receivable reports, match invoices to shipping log, confirm accounts receivable, and review cash receipts. All of these processes are unique in their own way and all can play a critical role in an audit that is being done. There are a few different types of fraud that can be committed using accounts receivable. One known fraud that can occur is skimming. This is when there is a theft of receivables before the funds are recorded. Lapping is another type of fraud that can take place and occurs when there is a continuous recording of one customers payment to another customers account to coverup the theft of receivables. It is important to make sure that your management and employees are trained properly to be able to recognize when fraud is happening. They should have a clear understanding of all the different types of fraud that can take place so they know what to identify.
3. Auditors use substantive audit procedures to test the balances of accounts receivables. These are direct test that use specific information from the company’s accounting systems and financial statements. Substantive procedures include bank and accounts receivable confirmations. Inquiring of management regarding the collectability of customer accounts, matching customer orders to invoices billed and matching collected funds to invoices billed. Observing a physical inventory count. Observing fixed assets and matching purchase orders and supplier invoices to fixed assets records. Confirming accounts payable and examining the accounts payables supporting documents. Confirming debt, and examining analytical analysis of assets, liabilities, revenue and expenses.
One type of fraud that can occur with accounts receivable is fictitious sales. Accounts receivable is not actually money in the bank, the accounts receivable person can fabricate invoices, which will inflate the account receivable, this could benefit a sale person working for commission. By reviewing invoices and customer accounts auditor can detect should be able to detect a fake customer this along with a good internal control system could detour this type of activity from happening.
I used to help with entering invoices for a previous employer for accounts payables, I personally do not think that they would do well, not because of fraud but because of lack experience and an owner who could not manage her money correctly. They have loss vendors do to not being able to pay them as well as the owner using the business account for personal use and not communicating with the bookkeeper.
Answer preview to discuss the best audit procedures for an audit of accounts receivable.
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