AUDIT PROGRAM

CLIENT: __________________________________________________________ E/AP/

PERIOD: __________________________________________________________
3

SUBJECT: TRADE DEBTS

Est. Phase/ W/P

Procedure By Comments/Explanations
Hrs. Level Ref.
AUDIT OBJECTIVES

To determine whether:

A. Receivables represent all amounts owed to the entity

at the balance sheet date and have been properly
recorded.
B. The allowances for doubtful accounts, returns and
allowances and discounts are adequate but not
excessive.
C. Receivables are properly described and classified and
adequate disclosures with respect to these amounts
(including disclosures of amounts that have been
pledged, discounted or sold with recourse or are with
related parties) have been made.

SUBSTANTIVE PROCEDURES

1. Overall Analytical Review

1.1 Using a carry forward Prepared By Client (PBC)

schedule, obtain explanations for significant
variations in account balances and aging, days sales in
account receivable (A/R) and % of allowance for
doubtful accounts to total accounts receivable
between this year and last year.
1.2 Review nature of all significant receivables. Discuss
collectibility and classification with client.
1.3 Compare the balance of each significant receivable
account with the comparable balance for the
preceding period. Investigate significant or unusual
fluctuations.
1.4 Compute the receivables turnover ratio (average
receivables to net revenues) for the current period.
Compare with the comparable ratio for the preceding
period and consider its reasonableness in relation to
revenue volatility, credit policy, collectibility, etc.
Investigate significant or unusual fluctuations.
1.5 Compute the average number of days of revenues in
receivables for the current period. Compare with the
comparable ratio for the preceding period and with
industry statistics. Investigate significant or unusual
fluctuations.

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 AUDIT PROGRAM
CLIENT: __________________________________________________________ E/AP/
PERIOD: __________________________________________________________
3

SUBJECT: TRADE DEBTS

Est. Phase/ W/P

Procedure By Comments/Explanations
Hrs. Level Ref.
2. Subsidiary Records

2.1 Have the client prepare a reconciliation of the

receivables subsidiary ledger to the general ledger
control accounts as of the circularization or balance
sheet date. Verify the clerical accuracy of the
reconciliation.
2.2 Trace control account totals to the general ledger and
subsidiary ledger totals to their source.
2.3 Examine supporting documentation for significant or
unusual reconciling items. (Scope/Sample).
2.4 Foot or test foot the subsidiary ledger to ensure that
all record receivables balances are included in the
totals.
2.5 Scan the subsidiary ledger for unusual balances or
amounts (e.g. credit balances, amounts due from
related parties, etc.). Investigate and examine
supporting documentation, as appropriate. Consider
including such accounts in the circularization
Scope/Sample: ( ).
2.6 Clerically test accounts receivable trial balance.
(Scope/Sample: __________.)

3. Circularization

3.1 Select a sample of accounts receivable from the

detailed trial balances for confirmation and consider
the manner in which confirmation should be
circularized by adopting a positive form of
confirmation.
[Scope:
o Balances over Rs. __________ to provide
__________% coverage, and/or
o Representative sample of __________
balances selected from the population.
o Make pareto analysis of population and make
circularization in a positive form to balances
which constitute 80% of the total balances].
3.2 If statistical sampling is used, indicate:
o Statistical method: __________
o Confidence level: __________%
o Tolerable error: Rs. __________
Consider using Microstart Sampling.

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 AUDIT PROGRAM
CLIENT: __________________________________________________________ E/AP/
PERIOD: __________________________________________________________
3

SUBJECT: TRADE DEBTS

Est. Phase/ W/P

Procedure By Comments/Explanations
Hrs. Level Ref.
3.3 Document sampling rationale (if not already
documented in planning), including the sample size,
coverage % (if appropriate) and tolerable error.
3.4 If debtors are circularized at the date other than the
balance sheet date, then consider applying the
alternate modified procedures.
3.5 Verify on a test basis the addresses supplied by the
client for circularization and cross check them with
invoices, correspondence etc.
3.6 Insist that confirmation be provided of the addressee
company duly signed and stamped by the addressee
company. However, the other modern means of
receiving confirmation like e-mails etc., are
acceptable where the control environment is good.
Provided these are received at firm’s official e-mail
address.
3.7 Have the client prepare confirmation requests. Obtain
requests and prepare confirmation control. Send first
requests. Retain copies.
3.8 Follow-up on confirmation requests and send second
and third requests as required.
3.9 Upon receiving confirmation replies, update the
confirmation control and file the replies as clean;
clean, with gratuitous comments; and exceptions.
3.10 Have client reconcile exceptions (consider using
standard reconciliation form . Verify the clerical
accuracy of the reconciliations and review for
completeness. Examine support for reconciling items.
(Scope/Sample: __________).
3.11 Prepare a summary of the circularization results,
including confirmation coverage, responses by type
and exceptions.
3.12 Indicate the likely error. If a representative sample
was selected, likely error is based on a projection of
the sample results.
3.13 Conclude on the results of the circularization.

4. Confirmations not sent on Client’s Request

4.1 For any confirmations that client personnel request

not to be sent, investigate the business reason for the
client’s request and evaluate it.

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 AUDIT PROGRAM
CLIENT: __________________________________________________________ E/AP/
PERIOD: __________________________________________________________
3

SUBJECT: TRADE DEBTS

Est. Phase/ W/P

Procedure By Comments/Explanations
Hrs. Level Ref.
4.2 If the business reason given is not satisfactory and the
account is significant, discuss the request with, and
obtain the approval of, the chief financial or chief
executive officer.
4.3 Determine that management has no objections to
reporting the request to the audit committee or board.
4.4 Verify the balances by examining critical forms and
documents ( ) to support transactions and
subsequent cash collections.
5. Realization and other alternate procedures

5.1 For non-replies, RPOs (returned by post office)

perform procedures in lieu of circularisation of
debtors or customers.
5.2 Review accounts receivable trial balance for
large/unusual items.
5.3 Have the client list subsequent cash collections for all
invoices over Rs.______. Trace subsequent
collections to the cash receipts records.
(Scope/Sample: __________). Ensure that
subsequent collections are against the balances as at
the balance sheet date.
5.4 Examine sales invoices and shipping documents for
unpaid amounts included in the balance.
(Scope/Sample: __________.)
5.5 Consider the collectibility of significant unpaid
balances, especially RPOs.
5.6 Review movement in accounts during the previous
year giving particular attention to the identification of
long unpaid invoice or unadjusted invoices/discounts
etc.

6. Foreign currency balances

6.1 Ensure that all receivables in foreign currencies, are

re-translated at the exchange rate prevailing on the
balance sheet date.
6.2 Ensure that hedge accounting practices in accordance
with IAS-39 have been followed with regard to any
balances covered under forward exchange contracts.
6.3 Have the client prepare a schedule of re-translation,
from rate at initial recognition and at balance sheet
date, of all receivables. Cross-refer exchange
differences with financial charges/other income.

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 AUDIT PROGRAM
CLIENT: __________________________________________________________ E/AP/
PERIOD: __________________________________________________________
3

SUBJECT: TRADE DEBTS

Est. Phase/ W/P

Procedure By Comments/Explanations
Hrs. Level Ref.
6.4 Where the company uses forward exchange contracts,
such contracts should be accounted for as assets and
liabilities. Gains and losses on such financial
instruments used for hedging of foreign currency
transactions should be recognized as income and
expense on the same basis as the corresponding
hedged item. Foreign exchange contracts are
translated at exchange rates prevailing at the balance
sheet date (representing their fair value).

7. Credit and Discounts policy

7.1 Check whether the receivable balances exceed the

allowed credit period and proper follow-up is made in
case when a receivable exceeds the allowed credit
period.
7.2 Review the client’s current policies regarding sales
discounts, returns and allowances. Examine selected
sales contracts to verify return policies and terms.
Identify changes from the prior period and evaluate
the effect of these changes.
7.3 Ensure that any amounts of discounts/bonuses
awarded subsequently based on the sales for the
period have been adequately accounted for in current
period.
7.4 Ensure appropriate allowance for sales returns and
review sales returns subsequent to year-end to ensure
that no exceptionally major return has occurred
subsequent to year-end which has not been provided
for.

8. Provision for Doubtful Debts and Aging Analysis

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 AUDIT PROGRAM
CLIENT: __________________________________________________________ E/AP/
PERIOD: __________________________________________________________
3

SUBJECT: TRADE DEBTS

Est. Phase/ W/P

Procedure By Comments/Explanations
Hrs. Level Ref.
8.1 Evaluate the following items and their impact on our
review of the adequacy of the allowance for doubtful
accounts. Document in a memorandum your findings
related to:
 Changes in the client’s credit and collection
policies that have occurred during the audit
period, including changes that have since been
reversed or modified;
 Impact of new products or new markets and
whether they involve a different, higher-risk
customer;
 General economic conditions and trends
adversely affecting the client’s customers;
 Other ratios, trends or relationships that are
unique to the client or its industry which relate
to receivables valuation; and
 Changes in methods, definitions or criteria for
aging accounts that might affect comparability
of the data.
8.2 Have the client prepare an analysis of the allowance
for doubtful accounts for the current audit period.
Verify the clerical accuracy of the analysis.
8.3 Cross-reference the provision for the current period to
the appropriate expense lead schedule.
8.4 Compare the provision, write-offs, recoveries and the
ending balance for the current period with the
comparable amounts for the preceding audit period.
Investigate significant or unusual fluctuations.
8.5 Review the listing of accounts written-off and
reconcile the totals with the amounts charged to the
allowance for doubtful accounts. Trace such amounts
in the accounts receivable subsidiary records in order
to ensure that the provisions exist against valid
receivables only.
8.6 Determine whether proper approvals were obtained
for selected write-offs. Scope/Sample:( ).
8.7 Obtain a copy of the client’s aging of receivables and
ensure that the analysis data is extracted from the
same integrated system from which the carrying
amounts are determined.
8.8 Test the clerical accuracy of footings and cross
footings of aging analysis. (Scope/Sample: ( ).
8.9 Compare the aging statistics with those of prior
periods. Investigate significant trends or fluctuations.

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 AUDIT PROGRAM
CLIENT: __________________________________________________________ E/AP/
PERIOD: __________________________________________________________
3

SUBJECT: TRADE DEBTS

Est. Phase/ W/P

Procedure By Comments/Explanations
Hrs. Level Ref.
8.10 Trace the aging information for selected accounts to
subsidiary ledgers and to supporting critical forms and
documents ( ). Concentrate the test on accounts
reflected as “current”. Recalculate the aging of the
account balances. Scope/Sample: ( ).
8.11 Be alert for receivables that should be written off,
under the client’s criteria.
8.12 Have the client prepare a listing of individual large
and/or past due receivables for specific review of their
probable collectibility. The client’s evaluation of each
receivable and subsequent cash collections should be
indicated on the schedule. Scope/Sample: ( ).
8.13 Relate the totals of individual receivables listed to the
client’s aging of receivables. Ensure that significant
past due receivables are not omitted from the listing.
8.14 Identify any customers with “locked-in” receivable
positions and consider the implications thereof.
8.15 Discuss the accounts with informed client personnel
to obtain additional background information.
8.16 If additional work is necessary to satisfy yourself
regarding the probable collectibility of an unpaid
balance, consider the following:
 Review credit and collection files and the
debtor’s or customer’s financial statements;
and
 Obtain reports of credit bureaus or credit
reporting companies.

9. General Allowance for Doubtful Receivables

9.1 Identify a range of specific allowances required for

the total individual receivables reviewed.
9.2 Calculate the percentages of the allowance for
doubtful accounts to total receivables and to
receivables aged over 60 days. Compare with similar
percentages for prior periods. Investigate significant
fluctuations or trends.
9.3 Calculate the percentage of accounts written-off to
credit sales and average receivables for the period.
Compare with the similar percentages for prior
periods. Investigate significant fluctuations or trends.
9.4 Calculate the percentage of the provision for doubtful
accounts to gross sales. Compare with the similar
percentage for prior periods and with industry
statistics. Investigate significant fluctuations or trends.

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 AUDIT PROGRAM
CLIENT: __________________________________________________________ E/AP/
PERIOD: __________________________________________________________
3

SUBJECT: TRADE DEBTS

Est. Phase/ W/P

Procedure By Comments/Explanations
Hrs. Level Ref.
9.5 Based upon the above percentages, the review of the
aging and historical write-off statistics, identify a
range of general allowances required for receivables
not specifically reviewed above.
9.6 Summarize the results of our specific and general
review of the collectibility of receivables and
determine an acceptable range of adequacy of the
allowance for doubtful accounts. Adjust the identified
range for other factors identified above that influence
the collectibility of receivables.
9.7 Compare the balance of the allowance for doubtful
accounts as of the balance sheet date with the
acceptable range determined above. Propose an
adjustment, as appropriate, to ensure that the
allowance falls within the acceptable range.

10. Secured Receivables

10.1 Check agreements with parties on test basis to ensure

the reliability of the amount being disclosed as
secured
10.2 Check the value of such security.
10.3 Check the amount of secured balances on party to
party basis and compare the carrying amount with
secured amount.
10.4 Physically verify the assets charged.

11. Pledge, Discounting and Securitization

11.1 Inquire as to whether any receivables have been sold

or discounted. Review the terms of each such
transaction and determine whether it should be
recorded as a sale or loan. Review the client’s entry to
record the transaction for propriety and test the
calculation of any gain or loss.
11.2 For receivables sold or discounted with recourse,
confirm the existence of the agreement (or its
principal terms) and the amounts sold with the
purchaser.
11.3 Compare the amounts confirmed with the financial
statement disclosure of the contingent liability.
11.4 Consider whether any allowance for recourse is
required.

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 AUDIT PROGRAM
CLIENT: __________________________________________________________ E/AP/
PERIOD: __________________________________________________________
3

SUBJECT: TRADE DEBTS

Est. Phase/ W/P

Procedure By Comments/Explanations
Hrs. Level Ref.
11.5 For receivables sold without recourse, confirm the
agreement (or its principal terms) and the status of any
receivable balances retained by the seller. [Consider
using Emerging Issues Task Force EITF 18-88 for
establishment of criteria].

Other tests as deemed necessary

Management Letter

Prepare management letter points including:

 Internal control weaknesses;

 Business improvement opportunities;
 Legal non-compliance;
 Accounting system deficiencies; and
 Errors and irregularities not material at the
financial statements level.

Disclosure

Ensure appropriate disclosure in accordance with the

reporting framework and fill relevant portion of
FSDCL.

Supervision, review and conclusion

1. Perform Senior review and supervision.

2. Resolve Senior review points.
3. Resolve Partner and Manager review points.
4. Conclude response to the audit objectives.

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 AUDIT PROGRAM
CLIENT: __________________________________________________________ E/AP/
PERIOD: __________________________________________________________
3

SUBJECT: TRADE DEBTS

Est. Phase/ W/P

Procedure By Comments/Explanations
Hrs. Level Ref.

Audit conclusion

Based on the substantive test procedures, I/we performed as outlined above, it is my/our opinion that the audit objectives set forth at
the beginning of this audit program have been achieved, except as follows:

___________________________________________________________________________________________________________

___________________________________________________________________________________________________________

___________________________________________________________________________________________________________

__________ _____________ _________ ________

Date:____________ Signature Job Incharge Manager Partner

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