The overall objective of conducting an audit of the receivables accounts is to examine that the related transactions presented in the context of the financial statements are fair and true. Since the accounts of the sales, services and revenue are closely related to the receivables account, the value of the both must be equal to one another in an organization. For conducting an internal audit of the receivables the relevant statutes have provided with a checklist for receivables. It is important to follow the same by the auditor to ensure correctness of the transactions. This checklist is also helpful in verifying each and every aspect related to the receivable and therefore, should not be avoided.
Audit Checklist for Receivables:
The audit checklist for receivables that is available to ease the auditing service, have the following checkpoints-
- Documentation: As part of the checklist of receivables documents related to pro forma invoices, sales order, purchase order. Invoice copies, goods and services delivery documents etc. are to be verified by the auditor. He must prepare a proper audit documentation keeping in mind all these aspects.
- Legal Compliance: Internal auditor has to ensure that the business organization and its departments or units are complying with the prescribed provisions and legal requirement by the center and state laws.
- Authorization Matrix: A well-documented authorization matrix is always desirable and is recommendable in the checklist for receivables. At the time of vouching compliance to the authorization matrix must be ensured and should cover the following points-
- Issued credit notes
- Terms and limit of credits
- Provisions on bad debts and write-off
- Compliance with Accounting Standards and Standards on Auditing: Another important part of the checklist for receivables is to ensure compliance with the following and refer these-
- AS 9: Revenue Recognition
- AS 18: Related Party Disclosure
- AS 1: Disclosure of Accounting Policies
- SA 265: Communicating Deficiencies in Internal Control to Those Charged with Governance and Management.
- Procedures and Controls: A necessary checkpoint in the Internal Audit Checklist for receivables is to make sure that the following procedures are being followed for internal audit-
- Report on Trace receivables
- Verification test for invoices
- Reviewing the receipts of payment
- Reviewing the credit and the debit notes
- Investigating the reconciling items
- Assessing the doubtful accounts
- Checking the segregation of duties
- In case segregation of duties are absent, providing special attention to deviations from the authorization matrix
- Analyzing the latest trends
- Checking the hold sales, services, revenue and the invoices
- Verifying returns for sales, services and revenue
- Matching the dispatch log and the invoices
- Recording of Transactions: Internal auditor responsibility is to ensure that all transactions related to revenue are recorded in accounts books and compliant with the Accounting Standard (AS) 9: Revenue Recognition and the accounting policy.
- Reporting: The auditor usually while applying all the points provided in the checklist for receivables has to complete the Internal Audit process by reporting the findings in a proper report to the management of the company. The reporting process is done in two ways or phases. These are-
- Preliminary Audit Report: It consists of the audit report draft, once all the comments have been resolved by the company. The auditor has to send the this report as a confidential document to the Proprietor or Managing Director or Chief Executive Officer or the designated partner in the entity. In the specified time, they have to communicate a formal response towards the recommendations given the report.
- Final Audit Report: Once the response against the preliminary report by the concerned authority or officer is approved, a final report for the audit is prepared or formulated. It is actually a single document that contains both the preliminary report and responses combined together in written format. The final report has to be communicated to the Proprietor or Managing Director or the designated partner or Audit Committee Chairman in the entity. This report is to be discussed in the next scheduled regular meeting.
- Suggestions and recommendations, if any: Internal auditor has to make suitable recommendations in the audit report. These suggestions can be used for improving the accounting system used by the company presently for removing any shortcomings.
