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Trade Receivables – ACCA Audit and Assurance (AA)

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  1. I appreciate the lectures but my one concern here is you explained Reconcile, aged listings, scrutiny of board minutes etc…But you haven’t explained which assertions we are confirming by performing these test.

  2. 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 lodgings to pre year end cash book and post year end bank statement.’

  3. hello sir im very thankul to you and for your lectures btw,
    i have a query about the process of how a sale works, so i always understand what you explain as i try to understand everything around it, the whole picture and usually youre explanations are enough for me to get it too but when you talked about TRACING, i couldnt follow up as i dont know how the process of recording the different aspects of a sale in documents by a company work, eg the sales invoices and the dispatch notes, id love to know the whole process, i tried googling it but couldnt find an answer, id be very grateful if you could maybe send a link of where i could understand this process in depth or maybe if you dont mind and have the time, just give a brief summary of what i could use to understand a little better for the AA exam as it seems its a bottleneck for me to understand some things you say because i dont know this process. Thank you sir for all your work 🙂

    • This is largely assumed knowledge – transactions are recorded in books of prime entry – see Chapter 10 of our FA notes and lectures which you will find here https://opentuition.com/acca/fa

      Separate records are kept for inventory – see Chapter 5 of our MA notes and lectures which you will find here https://opentuition.com/acca/ma

      What we’re doing in AA is bringing together the transaction flow and the physical goods flow – see Chapter 13 of the AA notes. The arrows show what needs to be traced/tracked. Please use the ask the tutor forum for queries that do not relate directly to a lecture (that is where I will see them).

  4. Hi, I wonder if you could tell me what these receivables substantive procedures test for
    – For any slow moving/aged balances review customer correspondence to assess whether there are any invoices in dispute.
    – Review board minutes of Dashing Co to assess whether there are any material disputed receivables
    the acca exams 2017 sep dec state Accuracy, valuation and allocation
    Kaplan acca state existence and rights and obligations
    which is right? or is it both.

    • It’s all three – “existence”, “rights” (obligations pertains only to a liability) and “accuracy and valuation” (allocation would be something like allocating depreciation expense to the cost of inventory).

      So a customer could dispute an invoice/balance because the goods were never delivered (the debt does not exist) or the goods were delivered but to another customer (there are rights but not with this customer) or the goods were delivered but they have been wrong priced (accuracy and valuation) or the goods were delivered and correctly priced but the customer refused to pay for some other reason (bad debt allowance is a matter of valuation).

  6. Hi Sir,

    While sending third party confirmations – they are send on a “Client letter head” or they are send a on “Auditors Letter head”

    Thank you!

      • Even my understanding was the same but I came across one question of BPP
        which says:-

        Q – The audit team has started to perform audit fieldwork on Wilbur Co.
        In order to gain assurance over the company’s bank balance, you have asked Julie(auditor) to arrange for a bank confirmation letter to be sent to Wilbur Co’s bank.

        Which of the following summarises the steps to take in preparing the bank
        confirmation letter?

        A Written on the audit firm’s headed paper; information requested to be sent directly to the auditor
        B Written on the client’s headed paper; information requested to be sent directly to the auditor
        C Written on the audit firm’s headed paper; information requested to be sent directly to the client
        D Written on the client’s headed paper; information requested to be sent directly to the client

        The answer for the same as per BPP is A.

        Can you please help me further. Or is it like when we raise bank confirmations – we use Auditor’s letterhead and in other cases like receivables and payables we will us Client’s letterhead.

        Thank You!

      • Sorry, for some reaaon I read your original query as relating to a receivables confirmation.

        Bank confirmations are differemt because the client gives standing permission for its bank to reply to auditor’s queries. Therefore, letters to the bank for balance confirmation can be on auditor’s note paper.

    • The circularisation letter would ask a customer to confirm that they owe, say $1,200. If the customer thinks they only owe, say, $1,000, then the balances do not agree. A negative circularisation hopes that in those circumstances the customer will reply stating that so that the difference can be investigated.

  13. excellent lecture. one question about Correspondence:

    does the auditor write to the customers about balances in addition to the circularization? or does the auditor simply looks at the correspondence that has already happened between the client and its customers?

      • cool!! .. another question but this is more related to the technique of answering the question rather than the answer it self:

        suppose u r given 2 liner scenario about a company and the question is as follows (10 marks):

        Explain the audit procedures that should be carried out on the receivables
        balance at Delphic, explaining the reason for each procedure.

        1. how many procedures shd the answer have?
        2. how important is it that procedures pertain to different assertions? for example, we know that Receivables key assertions are existence and valuation. what if, in the heat of the moment in the exam, you can only remember the procedures related to existence. how wd the examiner mark such a question?

        thanks in advance

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