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If a company has receivable from related party for 16 months.
The company outs this receivable in its current assets to enhance its liquidity.
What Should i as an auditor do ?Disclose in the related party transactions note. Find out the nature of the debt and recoverability. Is the debtor solvent, can our company rely on getting in the money in a case of need.
Where would you want to include this receivable if it were not in current assets? You say it’s there to enhance liquidity but where else could it go? INCA? TNCA?
Hi Mike
If services or goods are sold to related party , wont you account for it just like other receivable?
As he say company is showing it in current receivable , may be carried forward from last year ? Or may br related party assured company that they will pay this year.Auditors should do procedures regarding the nature of transaction , amount and if any correspondence tookplace regarding the recoveability of amount
In this case recording it in current assets as receivable is approriate or not?Plus how will u record the transaction if you sell goods and buyer pay in 1.5 year time? We will not record it ?
I think the question comes down to the terms of the agreement for the sale. If the agreement says that the amount is payable in >12 months’ time, then show the receivable as a deferred asset – somewhere between the categories of non-current and current. But if, when you make the sale, it is anticipated that it will be receivable within 12 months, but the related party defers and defers payment and the debt becomes outstanding for > 12 months …well, it’s still a current asset – unless of course it is decided that its recoverability is now in doubt in which case there is a strong argument for making full provision and effectively reducing the receivable to zero.
What terms were in the original sale agreement concerning credit period? If none, then show as current asset and maybe need to review recoverability if it continues to be unpaid.
If there WAS a term in the original sale agreement, then follow the term – maybe it’s current, maybe it’s deferred.
But if I sell in May 2012 with a payment / credit period of 18 months, then at the December 2012 year end it’s a current asset.
If I sell in November 2012 with a credit period agreement of 18 months, then at the December 2012 year end, it’s a deferred asset.
As to recognition of the revenue, that would be recognised as at the date of the sale – no matter the credit period. More than 12 months hence, discount the receivable by the appropriate number of years, but still recognise the revenue with effect from the date of sale. But even then, >12 months hence could be the situation outlined above where a sale is made in May 2012. The receivable at 31 December should in theory be discounted but this tends not to be done (so far as I am aware) in practice
OK?
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