Index [__________]

Accounts Receivable and Sales Audit Program

Entity: Balance Sheet Date:

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FINANCIAL STATEMENT ASSERTIONS

E/O Existence or occurrence
C Completeness
R/O Rights or obligations
V Valuation or allocation
A/CL Accuracy or classification
CO Cutoff

IDENTIFICATION CODES

The letters in the left column labeled “Assertions” indicate

that the audit procedure provides assurance about the
indicated assertions. If the letter appears in a bracket (for
example, [E/O], [C], etc.), the audit procedure only
secondarily provides assurance about the assertion. If an
asterisk (*) precedes a procedure, it is a preliminary step or
follow-up step.
BASIC PROCEDURES

Accounts Receivable
E/O, C, S 1. Perform the following analytical procedures:
A/CL, [CO]
S a. Compare the balance in trade accounts receivable
with the balance for prior periods or other
expectation.
b. Compute the ratio of accounts receivable to current
assets, total assets, and/or net worth and compare to
the ratios for prior periods or other expectations.
S c. Compute the ratio of accounts receivable balance to
net credit sales for the current period and compare
with the ratio for prior periods or other expectation.
d. Obtain from the client an analysis of days sales
outstanding by major customer category.
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e. Compute the number of days sales in accounts
receivable (net accounts receivable divided by
average net sales per day) and compare to the ratio
for prior periods or other expectation.
f. Other ratios unique to the industry or client
(describe):
[ ]
S g. Investigate any unexpected results (that is, ratios or
variations different from what would be expected),
considering known changes in client or industry
operations or business conditions, such as price
changes, etc.
E/O, C, S 2. Obtain and review a reconciliation of the aged accounts
A/CL receivable trial balance to the general ledger account
balance.
S a. Obtain and document an explanation for any unusual
reconciling items. Review documentation supporting
reconciling items and explanations, as considered
necessary.
[E/O], S 3. Scan the trial balance for unusual items or items that
A/CL might require reclassification in the balance sheet.
Discuss such items with the client and if necessary review
supporting documentation and propose reclassifications.
E/O, R/O, S 4. Perform the following confirmation procedures:
A/CL, [CO]
S a. Select accounts to be confirmed from the aged trial
balance. Document the items selected for
confirmation.
S b. Have positive confirmation requests prepared.
S c. Control the mailing of the confirmations.
S d. Send second requests to nonreplies.
S e. Reconcile differences reported on confirmation
replies. Examine supporting documentation for
reconciling items (remittance advices, deposit slips,
invoices, shipping documents, etc.) as considered
necessary.
S f. Perform alternative procedures on nonreplies.
S g. Summarize the results of the confirmation
procedures.
[E/O], V S 5. Test the adequacy of the allowance for doubtful
accounts.
S a. Update your understanding obtained during planning
of the client’s process for estimating the allowance, if
necessary.

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S b. Compute one or more of the following ratios;
compare the balances and ratios computed to those
for prior periods or other expectations; and
investigate any unusual relationships or trends (that
is, ratios or trends different from what would be
expected, considering known changes in client or
industry operations or business conditions):
S (1) Comparison of the balances in the allowance for
doubtful accounts, sales returns and allowances,
and bad debts expense with the amounts for
prior periods or other expectations.
(2) The allowance as a percentage of accounts
receivable.
(3) The allowance as a percentage of net credit sales.
(4) The age of receivables [(average net receivables ×
365) ÷ net credit sales].
S (5) Each aging category (under 30 days, 30–60 days,
etc.) as a percentage of total receivables.
(6) Bad debt expense as a percentage of net credit
sales.
(7) Open customer balances as a percentage of total
year-to-date sales by customer.
S c. Inquire whether collection problems are likely to
occur with accounts that are presently classified as
current (for example, customer disputes or financial
solvency issues).
R/O, A/CL S 6. Based on a review of confirmation replies from financial
institutions, loan agreements, minutes, inquiry of the
client, and work performed in other audit areas,
determine whether there are sold, pledged, discounted,
or assigned receivables. Summarize information needed
for financial statement disclosure.

Sales
A/CL S 7. If considered necessary, update your understanding
obtained during planning of the client’s revenue
recognition policies and determine that they are in
accordance with GAAP. Inquire of management about,
and evaluate, changes in revenue recognition policies.

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E/O, C, S 8. Obtain a schedule for the workpapers summarizing sales,
A/CL, [CO] sales returns, and allowances at an appropriate level of
detail (for example, by major product line, geographic
location, or other meaningful division), in total and by
meaningful interim period (monthly, quarterly, etc.).
Agree or reconcile the total to the general ledger.
Perform one or more of the following analytical
procedures:
S a. Compare amounts to those of prior periods or other
expectations.
S b. Compare actual amounts to budgeted amounts.
S c. Other ratios or expectations unique to the industry or
client (describe): [ ]
S d. Investigate any unexpected results (that is, ratios or
variations different from what would be expected),
considering known changes in client or industry
operations or business conditions, such as price and
volume changes, seasonal fluctuations, trends, etc.
E/O, 9. Scan the sales journal and investigate large or unusual
[R/O], transactions near year-end (both before and after).
[A/CL], CO Discuss such items with the client, review supporting
documentation, and propose adjusting or reclassifying
entries if considered necessary.

Concluding Audit Steps

* S 10. Consider the need to apply one or more additional
procedures. The decision to apply additional procedures
should be based on (a) your risk assessment (b) a
consideration of whether information obtained or
misstatements detected by performing audit procedures
or from other sources during the audit alter your
judgment about the assessed risk of material
misstatement (whether caused by error or fraud), and (c)
an evaluation of whether the procedures performed have
provided sufficient assurance. If risks or other conditions
are identified that require an additional audit response,
ensure that those risks or conditions and your response
are documented.
* S 11. Consider whether the results of audit procedures indicate
internal control related matters that are required to be
communicated to management and others. If so, add to
the memo of points for the communication of internal
control related matters.

Conclusion

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* S 12. We have performed procedures and obtained audit
evidence sufficient to provide reasonable assurance
about accounts receivable and sales (to support our
opinion on the financial statements taken as a whole).
The procedures performed, relevant evidence obtained,
and our conclusions are adequately documented. (If you
are unable to conclude, prepare a memo documenting
your reason and the implications for the engagement,
including the audit report.

[ ]

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EXTENDED PROCEDURES (PROCEDURES FOR ADDITIONAL
ASSURANCE)

Accounts Receivable
Test of Mechanical Accuracy
S 1. Perform the following procedures on the aged trial
[V], A/CL balance:
S a. Test the clerical accuracy.
S b. Test the accuracy of the aging categories for
individual accounts by tracing amounts in each
category to detail in the subsidiary ledger and to
underlying sales invoices and collection
documentation.

Additional Confirmation and Alternative Procedures

2. Expand confirmations for the following receivable
E/O, R/O, categories, if significant:
A/CL
a. Receivables for transactions that are complex.
b. Receivables for customers that historically have
received adjustments or were slow to pay.
c. Receivables for customers that receive nonstandard
terms.
d. New customers.
3. Modify the follow-up and alternative procedures for
E/O, R/O, nonreplies by performing the following procedures:
A/CL
a. Increase the number of follow-up attempts, including
phone calls to obtain the confirmation.
b. When examining supporting invoices and shipping
documentation for nonreplies with no subsequent
cash receipts, also examine supporting
documentation regarding the nature of the billed
transaction, underlying sales terms, and customer
history.

Additional Confirmation Procedures in Response to Fraud Risk

Assessment
4. Perform the following procedures (generally as a
E/O, R/O response to identified fraud risks):

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a. Verify customer addresses by selecting large
accounts and independently tracing them to phone
or business directories, phone calls to customers,
documents received from customers, credit checks,
etc.
b. Make oral inquiries of customers in addition to
sending written confirmations.
c. Verify the validity of nontraditional confirmation
replies, such as those received by fax or email.
d. Confirm additional information with the customer,
such as any special sale or payment terms extended
to the customer or certain relevant contract terms.
e. Send confirmation requests to specific individuals at
the customer whose authenticity has been verified.

Test of Allowance for Doubtful Accounts

S 5. Perform the following procedures to test the allowance
E/O, V for doubtful accounts:
S a. Obtain and review an analysis of the allowance
account and bad debt expense account. Consider,
and discuss with the client, the reasonableness of
write-offs and recoveries.
S b. Review the aged trial balance with subsequent
collections, credit memos, and write-offs posted on it
and discuss with the client balances over [ ] days
that have not been subsequently cleared. If
considered necessary, review supporting
documentation for client explanations, such as credit
files, customer correspondence, etc.
S c. Consider whether credit memos or write-offs after
the balance-sheet date indicate that an account was
doubtful as of the balance-sheet date.
S d. Test subsequent collections posted to the aged trial
balance for major account balances by examining
deposit slips and remittance advices and matching
cash receipts to specific invoices. Document the
account balances selected for testing.
e. Examine documentation supporting write-offs and
adjustments to individual accounts and the allowance
account (client approvals, credit memos, etc.).
Document the items tested.
f. For significant delinquent balances, consider
evaluating the debtor’s creditworthiness and the
value of any collateral pledged to secure the
receivable.

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S g. Estimate a range of allowance for doubtful accounts
that would be acceptable. Compare the range to the
allowance and challenge any difference between the
client’s amount and the closest amount in the
acceptable range.

Additional Procedures on Cash Receipts in Response to Fraud

Risk Assessment
6. Perform a proof of cash (generally as a response to
E/O, [R/O] identified fraud risks). In addition, consider verifying or
performing the following:
a. The dates of cash receipts and deposit tickets are
identical.
b. The total amounts on the daily cash receipts list and
daily deposit slips agree.
c. The customer’s name and deposit amounts are the
same on the daily cash receipts journal and the
subsidiary ledger.
d. Deposit slip totals are accurate.
e. Review customer complaints.
f. Search for write-offs that are unusual, such as write-
offs of balances due from continuing customers.
g. Review credit memos.

Sales
Test of Mechanical Accuracy
S 7. Test the clerical accuracy of the schedule of sales, sales
[E/O] returns, and allowances obtained for the workpapers.

Additional Analytical Procedures for Sales

S 8. Obtain a schedule for the workpapers summarizing sales,
E/O, C, sales returns, and allowances at an appropriate level of
A/CL, [CO] detail (for example, by major product line, geographic
location, or other meaningful division), in total and by
meaningful interim period (monthly, quarterly, etc.) for
the year. Perform one or more of the following analytical
procedures:
S a. Compare amounts between interim periods.
S b. Compute the ratio of sales returns and allowances to
gross sales at a detail level and in total.

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S c. Investigate any unexpected results (that is, ratios or
variations different from what would be expected
based on seasonal fluctuations, trends, and prior year
results), considering known changes in client or
industry operations or business conditions, such as
price and volume changes, etc. Document the
considerations and evaluation of related
explanations.
9. Using the schedule of sales, sales returns, and allowances
E/O, C, obtained for the workpapers, perform a predictive test of
A/CL, [CO] sales at an appropriate level of detail (for example, by
product line, geographic location, or other meaningful
division), and compare the results with the amount
recorded in the accounts. Investigate significant or
unusual differences.

Test of Sales Completeness

S 10. Inquire of management as to steps taken to ensure the
C trial balance is complete, i.e., that all receivables due the
entity are included on the trial balance or all sales of the
entity have been recorded.
11. Perform the following procedures as a test of sales
C, [A/CL] completeness:
a. Select a sample of original shipping documents.
Document the items tested.
b. Trace the information on the documents to the
related sales invoices. Determine that details are
appropriately reflected on the invoice.
c. Determine that the total amount of sales reported on
the invoice is properly computed and approved.
d. Trace the amounts on sales invoices to proper
recording in the sales journal or general ledger, as
appropriate.
e. Determine that proper accounting treatment has
been applied to these sales transactions.

Test of Sales Cutoff

S 12. Perform the following procedures to test sales cutoff:
[A/CL], CO
S a. Scan the sales journals for one month before and
after the balance-sheet date. Investigate any unusual
entries.
S b. Compare sales for the last month of the year to sales
for the rest of the year and the first month after year-
end.

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S c. Compare monthly sales returns and credit memos for
the last few months of the fiscal year to the first few
months following year-end.
S d. Investigate the nature and cause of any significant
differences disclosed by the preceding comparisons
(that is, variations different from what would be
expected, considering known changes in client or
industry operations or business conditions).
e. Review the journal for sales returns and credit
memos for two months before and after the balance-
sheet date. Investigate any unusual entries.
f. Trace the shipping documents for the last [ ]
shipments before year end and the first [ ]
shipments after year end obtained during the
physical inventory observation to the sales journal to
determine whether they were recorded in the proper
period.
13. Perform the following procedures related to sales cutoff:
[A/CL], CO
a. If there is an identified risk of material misstatement
due to fraud involving improper revenue recognition,
consider inquiring of sales and marketing personnel
about sales or shipments near year-end and their
knowledge of unusual terms or conditions related to
those transactions.
b. Compare revenues recorded daily for the periods
shortly before and after the balance-sheet date for
unusual fluctuations.
c. Compare monthly cash receipts during the year to
cash receipts subsequent to year-end to determine if
receipts subsequent to the balance-sheet date are
unusually low compared to the collection history
during the months under audit.
d. Vouch large or unusual sales made at year-end to
original source documents.
e. In conjunction with the tour of the shipping and
receiving area during inventory observation, consider
physically observing goods being shipped or readied
for shipment, or returns awaiting processing, at the
balance-sheet date.

Other Procedures for Additional Assurance

14. Other additional procedures (describe):
* [ ]

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