Audit of Sundry Debtors
In this article author (CA RAMANUJAN SHARMA) has tried to simplify the procedure to be followed while conducting audit of the Debtors in a brief manner:
Debtor
represents the amount due to an entity for goods sold or services rendered or
in respect of other similar contractual obligations but do not include the
amount which are in the nature of loans and advances. In some cases, Debtor may
constitute a significant proportion of the total assets of an entity.
The
auditors are expected to keep in mind the following factors while auditing the
debtors of the entity:
Whether
the basis on which the credit limit of the customers is decided are clearly
laid down.
Whether
the entity has proper procedures for the preparation of the ageing schedule at
regular intervals
Whether
the statement of accounts was sent to all debtors at periodic intervals
Whether
approval of competent authority is taken for material adjustments such as
rebates, commission, allowance, bad debts written off, etc.
Audit
assertions
The
auditor should check the supporting documents. Verification of subsequent
realizations is a widely used procedure even in cases where the direct
confirmation process is followed.
Direct
Confirmation
The
verification of balances by direct confirmation with debtors is theoretically
the best method of ascertaining whether the balances are genuine, accurately
stated, and undisputed.
Direct
confirmation can be of two types -
Special attention
should be given to accounts with:
There may
be situations (disputed dues) wherein the management requests the auditor
not to seek confirmation from certain debtors. In such cases, the auditor
should consider whether management has reasonable grounds for such a request.
Analytical
review procedures
The
following procedures may often be useful for obtaining audit evidence:
The
following are some of the indications of doubtful and uncollectible
debts -
Management
Representation Letter
The auditor should obtain from the management a written statement regarding the classification, existence, completeness, and recoverability of the debtors.
Source: Guidance Note on Audit of Debtors, Standard on Auditing
For any
inquiry you may write us on: ramanujan.ca@gmail.com
Disclaimer: The information provided by the
author in the article is for general informational purposes only. All
information provided is in the good faith, however we make no representation or
warranty of any kind, express or implied, regarding the accuracy, adequacy,
validity, reliability, availability or completeness of any information in the article.