- August 10, 2021 at 3:32 pm #631065faisal8Member
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so provided the title, is the following considered a substantive procedure for TR and if so could you explain it to me?
• Perform reconciliation on receivables ledger and receivables control accountAugust 10, 2021 at 4:25 pm #631070Kim SmithKeymaster
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An audit procedure that is concerned with monetary amounts is primarily substantive https://opentuition.com/topic/audit-procedure-16
Therefore to reconcile any numbers (“data elements”) from separate sources is substantive. Reconciliation means that the numbers are not expected to agree – but the sources of the difference are understood (and can be verified).
The most common reconciliations relevant to AA are:
(a) Bank reconciliation;
(b) Trade receivables control account reconciliation;
(c) Supplier’s statement reconciliation.
(b) Reconciles the balance on the trade receivables control account in the general ledger to the total of the list of balances extracted from a separate trade receivables/sales ledger. Reconciling items might include:
• Casting errors (i.e. addition errors) in a book of prime entry (affects only the total) will give rise to an error in the control account.
• Omissions or duplicated postings of individual transactions (affect only the list of balances).
• Transposition errors (in individual amounts or totals) will result in errors (in the individual and control accounts, respectively).
• Contra-entries (i.e. offsetting a receivable against a payable when a customer is also a supplier) in individual accounts not recorded in control accounts.
• Irrecoverable debt write-offs in individual accounts are not recorded in the control account.
• Casting error in balancing off accounts (individual or total).
• Errors in extracting the list of individual balances:
— Recording credit balances in trade receivables ledger as being a debit.
This is ASSUMED knowledge of FA/F3.
The other reconciliations are similarly assumed knowledge.
BUT NOTE!!!! When the client carries out such reconciliations routinely – typically as end of month procedures (as well as at the reporting date) – they are “control activities” – i.e. part of the entity’s system of internal control. In this case – the auditor simply checking “has the reconciliation been performed” – Y/N? “has the reconciliation been evidenced as reviewed” – Y/N? These are tests of controls.
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