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As receivables are assets we are concerned with the account balance provided in the period end balance sheet. Assertions related to assets include completeness, existence, rights and obligations, presentation, classification, accuracy, valuation and allocation. The degree of testing we perform would depend on the materiality of the receivables account balance. If there are a large number of balances, we could select an appropriate sample (key items and a representative sample) for each test using audit software such as sampling assistant. Before we perform the substantive testing on the receivables ledger we must first check if the final total agrees to the Trial Balance. Substantive tests for receivables include checking existence through receivables circularization, performing cut off tests at the period end to determine completeness of the receivables balance, ageing analysis to determine if there are any receivables that should be written off as bad debts, casting the ledger to check accuracy and reviewing manual adjustment entries or other unusual entries such as credit entries incorrectly made to the ledger. We can also perform substantive analytical procedures to determine the reasonableness of the movement in the receivables balance from the prior period.
Substantive tests for receivables include checking existence through receivables circularization, performing cut off tests at the period end to determine completeness of the receivables balance, ageing analysis to determine if there are any receivables that should be written off as bad debts, casting the ledger to check accuracy and reviewing manual adjustment entries or other unusual entries such as credit entries incorrectly made to the ledger.
