This document outlines an audit presentation on receivables. It discusses why receivables and revenue represent significant audit risk due to financial fraud risks and complex accounting rules. It then lists the audit objectives for receivables and sales across various assertions like existence, completeness, and valuation. Finally, it outlines the primary substantive audit procedures that would be used, such as reconciling subsidiary ledgers to the general ledger, confirming receivables, and analyzing allowance accounts. It includes two illustrations, one calculating a bad debt expense adjustment and another discussing a percentage-of-completion construction contract.

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
receivable 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!