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a) can you explain the need to do subsequent cash testing in trade receivables?
And also is there a similar testing for trade payables as well?b) can you explain ‘ trace outstanding lodgements to pre year end cash book and post year end bank statement.’ why is it pre year end cashbook and post year end bank statement?
Welcome to my forum and thank you for making posts here – I check my forums every day.
a) See on page 86 of the notes the assertion relevant to trade receivables (because it is an account balance). It is not enough that a debt is confirmed to exist – if the customer cannot or will not pay, receivables will be overstated unless bad debts are written off and adequate allowance made for doubtful debts. Cash receipts after the reporting date provide evidence that the debt is recoverable.
For payables – see the 4th bullet on page 91 – if you had payments to suppliers in January that were not recorded as liabilities as at 31 December, that might suggest that payables are understated (i.e. not complete). Here the auditor would be looking to confirm that if an after-date payment identifies a liability that is not included in the trade payables ledger, that it is included (instead) in an accrual – see on page 93 4th bullet reference to “Goods received – not invoiced” accrual.
Please see here my post about outstanding lodgements https://opentuition.com/topic/substantive-procedures-for-bank-reconciliation
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