.confirming tests

It depends what is the purpose of the exercise

If you’re doing this “select a sample of entries from the sales account in the nominal ledger and trace to the appropriate sales invoice and supporting goods despatched notes and customer orders” to ensure that

1) invoices can only be raised as a result of a despatch note being prepared and

2) goods can only be despatched following the receipt of an order from a customer

then this would be a test of control

If you’re doing it to ensure that the Receivables figure and the Revenue figure are reliably derived and do not include any fictitious sales, that would be a substantive test

Tests of control are trying to establish whether the directors’ internal controls system and accounting system are working reliably enough for the auditor to be able justifiably to rely on them to such an extent that the auditor could reduce the scope of the proposed substantive tests

Substantive tests are seeking to establish whether the actual figures that appear in the draft financial statements are probably reasonably accurate within material bounds

“but whereever there are practice questions ,,for procedures no answers includes selecting samples and tracing ,,from account and other records ,,they are wriiten as obtain confirmations ,,or agreeing figures ,,,or agreeing bank statements and cash books ,,,bank reconciliation etc …..so its getting difficult for me to come up relevant auditing procedures…”

These ARE procedures – think! They begin with a verb so they are procedures

“to see if amounts are accurate we can sum up all the recivables for an entity and recalculate them”

I don’t recognise this as any audit procedure that I was ever involved in!

What’s the problem with carrying out a circularisation?

Or obtaining an age analysis of receivables and reviewing the collectability of those that are over, say, 6 months old

Or reviewing correspondence between the client and the receivables

Or reviewing subsequent events to determine the extent of any after-date receipts from long outstanding receivables

Or obtaining written representations from management to confirm their opinion of the adequacy of the allowance for receivables

Or performing analytical review procedures (current ratio, days sales in receivables, percentages of current, 1 month old, 3 month old, 6 month old and >6 month old)

Or review of the terms of payment agreements with receivables to ascertain whether, and the extent of, any receivables are taking additional credit days

Or discussions with management concerning the company policy regarding credit periods offered

Or re-perform Receivables Control Account reconciliation with list of Receivables

Or ….

“discussions with management concerning the company policy regarding credit periods offered”

By these discussions we shall be establishing whether the receivable balances represent debts that are within the credit period and are thus not in any doubt as to their receivability

Where we come across debts that lie beyond their credit period, a question is raised about their collectability and thus there is a question about the overall accuracy of the Receivables figure

I could justify all of my points as being substantive tests to confirm accuracy … much better than I could justify anything that you have proposed!

😉