StudentShare
Contact Us
Sign In / Sign Up for FREE
Search
Go to advanced search...
Free

Auditing Accounts Receivable - Essay Example

Cite this document
Summary
When auditing accounts receivable, it is absolutely essential to determine the accuracy of accounts as well as ensuring that payment, discounts and additional fees are accurately applied to each customer account. This may not always be an easy task as the existence and rights…
Download full paper File format: .doc, available for editing
GRAB THE BEST PAPER93.9% of users find it useful
Auditing Accounts Receivable
Read Text Preview

Extract of sample "Auditing Accounts Receivable"

Accounts Receivable Audits When auditing accounts receivable, it is absolutely essential to determine the accuracy of accounts as well as ensuring that payment, discounts and additional fees are accurately applied to each customer account. This may not always be an easy task as the existence and rights assertions are necessary to determine correct accounting and reporting procedures. “Assertions regarding existence or occurrence address whether assets and liabilities exist at a given date and whether recorded transactions occurred during a given period” (Clikeman, 2004).

Each transaction or financial claim should be effectively verified by supporting documentation along with the account. Supporting documentation can include a receipt of purchase, check numbers, and invoices just to name a few. Such analytical procedures to verify existence assertions would be bank reconciliations and cash flow analyses. Without the documentation and analytical procedures to support financial transactions, the accuracy of the accounts receivable will not be strong and this will greatly overstate or understate each account.

To correct this, the existence and rights assertions are necessary to audit each account and verify that each transaction recorded has been recorded accurately and within the specified time period.The payroll cycle is a common source of frustration for an accounting and auditing department because of the myriad errors and cases of fraud that can take place. Employees may turn in fraudulent time sheets that state they have worked more or less hours than were actually completed. Supervisors may not adequately review all time sheet data and it may be passed through the payroll cycle without ever being checked for accuracy.

Furthermore, employees can sometimes create ghost employee records where payroll is paid to an employee that does not exist and costs the company thousands of dollars in unnecessary payroll expenses. Separation of duties is a common control method utilized by accounting and payroll professionals to detect payroll errors and catch fraudulent activity before it ever truly becomes an issue. For instance, companies are encourage to “have a minimum of two employees review bank statements and returned checks every month.

Also, divide Payroll duties so different people are responsible for approving time sheets, entering hours worked data, distributing paychecks, etc.” (Bilski, 2010). Having multiple people fill specific duties throughout the payroll cycle will have an adequate set of controls in place to check for errors, fraud and time sheet omissions.All transactions should be supported by financial documentation to verify and validate that all recorded entries on the books are accurate. If a sample of accounts are being audited and analyzed, the best place to find supporting documentation would be through the company’s internal bank statements, invoice records, payment receipts records and deposit slips.

A bank statement will help show any deposits that have been applied to the company’s account. These deposits should also be accurately recorded in the specific account under accounts receivable for the customer. In addition, checks may not have been deposited into the bank account; therefore, a company’s payment receipt documentation would be useful in determining whether a payment had been physically received, which invoice it paid and where it is currently sitting in the payment process.

The invoicing records will vouch for all services that were actually completed or any materials sold on account. Between the invoicing records and the payment receipt documentation, a bulk of the audit process can be completed to verify and validate accounting information and transactions on each account for accounts receivable. It is important to note that any transaction that is reported or unreported that does not have supporting documentation will not be included in the audit and will skew all financial records.

Therefore, it is highly critical that financial records and supporting documentation are present for all transactions to achieve an accurate accounts receivable audit.ReferencesBilski, J. (2010). Payroll fraud: are you vulnerable to ‘ghost’ employees?. CFO Daily News, Retrieved from http://www.cfodailynews.com/payroll-fraud-are-you-vulnerable-to-ghost-employees/ Clikeman, P.M. (2004). Financial statement assertions: auditors can use a framework built around five types of assertions to help assure financial statements are fairly presented.

Internal Auditor, Retrieved from http://findarticles.com/p/articles/mi_m4153/is_2_61/ai_n6152651/

Read More
Cite this document
  • APA
  • MLA
  • CHICAGO
(“Auditing Accounts Receivable Essay Example | Topics and Well Written Essays - 500 words”, n.d.)
Auditing Accounts Receivable Essay Example | Topics and Well Written Essays - 500 words. Retrieved from https://studentshare.org/miscellaneous/1570291-auditing-accounts-receivable
(Auditing Accounts Receivable Essay Example | Topics and Well Written Essays - 500 Words)
Auditing Accounts Receivable Essay Example | Topics and Well Written Essays - 500 Words. https://studentshare.org/miscellaneous/1570291-auditing-accounts-receivable.
“Auditing Accounts Receivable Essay Example | Topics and Well Written Essays - 500 Words”, n.d. https://studentshare.org/miscellaneous/1570291-auditing-accounts-receivable.
  • Cited: 0 times

CHECK THESE SAMPLES OF Auditing Accounts Receivable

The Process of Auditing

During auditing, the expectation is that the schedule of debtors or the accounts receivables should always agree with the figures in the financial statements (Loughran 2010).... Audit problems normally arise as a result of not taking into considerations the risks involved when dealing with accounts receivables.... The accounts receivables that have been listed may be inaccurate.... This therefore, has to be indicated in the bad debts and deducted from the accounts receivables....
8 Pages (2000 words) Essay

Elite Running Inc

hellip; The accounts receivable for Elite has dropped by $7 million as compared to last.... The only reason that could explain the reduction of accounts receivable is the decline in sales figures of the company.... Tick-mark b The fall in the accounts receivable of Elite Running Inc.... Thus the accounts receivable also declined in 2003 as compared to 2002.... Discussion: auditing and accounting issues for identified changes The accounting and auditing issues identified in the valuation accounts receivable suggest that the valuation of accounts receivables should have been $51m instead of $60m that has been recorded in the books of accounts....
4 Pages (1000 words) Case Study

EMs Audit of Maxall

However, an increase in cash could also be attributed to the collection of accounts receivable and not a new sales transaction.... On the other hand, an increase in receivables accounts could be due to the reinstatement or reversal of accounts receivable that had been written off.... accounts receivable are written off if there is a probability that a certain amount of receivables can no longer be collected because the customer may be absconded or has filed for bankruptcy in the courts2....
4 Pages (1000 words) Case Study

Ford Motor Company: Audit Risk Analysis

Subsequently, around $60,000, (60% of Annual fee for Board membership) got credited to its directors' accounts under the Deferred Compensation Plan for the Non-Employee Directors.... Its subsidiaries do participate in other businesses, which includes financing vehicles and many others....
7 Pages (1750 words) Research Paper

Analytical Examination of Financial ratios and Information

From the financial statements, the management commentary in the annual report and other sources, and using appropriate auditing procedures, identify FIVE areas of heightened audit risk relating to the audit of this company.... Explain why you consider these areas of increased audit… auditing is an art in itself in the sense that, numerous procedures that guides it operations in various procedures.... The process of auditing seeks to ensure that the financial statements and other documents are complete, they really occurred, correctly classified, accurate This essay seeks to examine five areas of heightened audit risk relating to the audit of the Havelock Company under study....
6 Pages (1500 words) Case Study

Areas with Heightened Audit Risk in Abbey Plc

Businesses since the time of immemorial, have seen risk as an unavoidable evil, which should be mitigated or minimized at all costs.... Abbey PLC.... is not exceptional.... As an auditor for… Secondly, expenses such as payment of salaries and creditors is another area, which the auditor should look at it closely....
7 Pages (1750 words) Essay

Accsys Technologies Plc - Wood Production and Sale

The audit procedures that an auditor develops in relation to revenue auditing and the assessment of their outcome calls for an understanding of how the organisation operates as well as its environment.... This paper "Accsys Technologies Plc - Wood Production and Sale" focuses on Accsys Technologies Plc....
6 Pages (1500 words) Assignment

Auditing of Havelock Europa Plc

Five financial report accounts that are more prone to fraud or error were discussed.... nbsp;… In terms of frequency and materiality of the accounts, the £ 554,000 cash is the most vulnerable account (Johnson, 2005).... This coursework provides auditing of Havelock Europa Plc....
8 Pages (2000 words) Essay
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.
Contact Us