The document outlines an audit program for testing trade receivables for Sheridan AV for the year ending March 31, 2021. Substantive testing is to be carried out on the statement of financial position to assess presentation and disclosure, accuracy/classification/valuation, rights and obligations, completeness and cut-off, and existence. Tests include vouching samples of receivables to supporting documentation, testing bad debt provisions, and cut-off testing of sales and returns. A trade receivables circularization is also to be performed. The auditor notes issues with amounts presented, calculations, and lack of support for bad debts, but otherwise the receivables appear fairly stated subject to matters highlighted.
1. 1
AUDIT PROGRAMME
TRADE RECEIVABLES
Name of Client Sheridan AV
Year-end March 31,2021
Name of Auditor (s) Seth Harvey M. Hendeve
Aljuantone B. Consigna
Trade receivables are shown as current assets. If genuine, they are owed by real people or
real organizations. They come into existence as a result of the sale of goods or the
performance of services by the company on credit.
Substantive testing should be carried out at year end on the Statement of Financial Position
to gain evidence regarding the following assertions:
Presentation and disclosure
Accuracy classification and valuation
Rights and Obligations
Completeness and cut off
Existence or Occurrence
The following substantive tests were carried out on the trade receivables showing on the
Statement of Financial Position (see attached)
Audit Assertion Audit objective Test(s) to be carried out Details of testing Date and
signature
Presentation
and Disclosure
Trade receivables
are properly
identified and
classified in the
financial
statements
Appropriate
disclosures have
been made about
debts that have
been factored or
otherwise
assigned
Perform analytical
procedures:
Calculateratios
Analyseratio results
Check opening balances
to previous years
accounts to ensure
properly brought
forward
Obtain the aged listof
balances
Check a sampleto
underlyingrecords.
Test the listadds up.
Agree the listto the
control accountand to
the financial statements
The presentation of sheets
and the clarity of the
information areclearly
stated and have the
appropriateinvoices and
notes to supplement the
necessary data on the
financial statements and the
receivableand prepayments
ledger.
Septem
ber 17,
2020
2. 2
Compare statement
presentation with
applicableaccounting
standards to determine
that trade receivables
are properly identified
and classified in financial
statements.
Is there an allowancefor
bad debts showingin the
financial statements?
Determine
appropriateness of any
disclosures relatingto
trade payables
Accuracy,
classification
and valuation
Rights and
Obligations
Receivables atthe
Statement of
Financial Position
date represent
legal claimsof the
entity on
customers for
payment
The provision for
bad debts
represents a
reasonable
estimate of the
difference
between gross
receivables and
their net
realisablevalue
Vouch a sampleof trade
receivables to supporting
documentation as
follows:
Vouch from listof trade
receivables to suppliers’
invoices,goods dispatch
notes and sales invoices
or other supporting
documentation to ensure
recorded at correct
amount owed.
Bad and doubtful debts –
1.Obtain a listingthat
breaks down the bad
debt provision by debtor
2. Obtain a listof debts
with balances
-over 3 months old
-in excess of their credit
limit
-in hands of liquidators
or receivers
Compare lists under 1
and 2 above to consider
adequacy of bad debt
provision. Obtain
explanations for any
material items that may
have been omitted from
bad debt provision
Obtain a listof
receivables written off
duringyear to ensure
they were authorised
and write off was valid
Amounts presented and the
calculation of other invoices
are not properly calculated.
Wrong operations areused
to get the total VAT.
Supporting documentations
are merely not enough to
supportother issues base
on the data given. Bad and
doubtful debts are also not
properly broken down and
separated which leaves a lot
of holes of information to
the receivables and
prepayments.
Septem
ber 17,
2020
3. 3
Completeness
and Cut off
Trade receivables
includeall claims
on customers at
the Statement of
Financial Position
date
Perform cut off tests for
sales and sales returns
1. Select a sampleof
recorded sales
transactions fromseveral
days before and after
year-end, and examine
supportingsales invoices
and dispatch notes to
determine that sales
were recorded in the
proper period
2. Select a sampleof
creditmemos issued
after year-end, examine
supporting
documentation such as
dated goods received
notes, and determine
that the returns were
recorded in the proper
period.
1. Base on the sample
recorded transactions,some
of the sales invoicesarenot
recorded in the proper
period and is creatinga
complex situation baseon
the determination of sales.
2. the samplecredit memos
issued after year end, the
dates and the data written
in the sheet are written
properly.
Existence or
Occurrence
Receivables
balances
represent
amounts owed by
customers atthe
Statement of
Financial Position
date
Perform a trade
receivables
circularisation (see
instructions on
supplementary sheet
page 4)
Where circularisation
has not been carried out
or unsatisfactory results
obtained carry out
alternativeprocedures
(see instructionson
supplementary sheet
page 4)
With the trade receivables
circularization,invoicesare
made clear and account
balances thataredoubtful
have been arranged and
cleared out.
Septem
ber 17,
2020
From the audit work carried out I confirm that (*subject to the matters highlighted below) in
my opinion, trade receivables are fairly stated.
Signed
Auditor
SETH HARVEY M. HENDEVE
ALJUANTONE B. CONSIGNA
4. 4
HOW TO CARRY OUT A TRADE RECEIVABLES CIRCULARISATION
1 Select a sample of accounts for confirmation from a complete list of balances
2 Confirm with client the receivables you wish to circularise. Obtain explanations
where the client does not want you to circularise.
3 Send the confirmation requests. Enclose a prepaid envelope for return to the
firm. Ensure that the reply part of the letter is properly referenced.
4 Record replies on a control sheet
5 Where replies are not received within a reasonable period send a follow-up
letter
6 Follow alternative procedures for any accounts which have an unfavourable
response or for which no response has been obtained.
7 Summarise the results and consider whether adequate audit evidence has been
obtained for trade receivables.
Procedures to carry out if a trade receivables circularisation is not carried out or
unsatisfactory results have been obtained
1 Examine the ledger for cash after date
2 For unpaid items inspect the sales invoices supporting them
3 Review correspondence files to determine whether any disputes exist.