Substantive Procedures

Receivables:

-Cast the receivables listing to ensure it is accurate.

-agree the total of receivables listing to sales ledger control account – tests for completeness [and existence – assuming it is the control account balance that is in the FS]

-for a sample of balances in the receivables listing agree to individual accounts in the sales ledger – tests for completeness [Won’t test for completeness because of something is not listed you will never trace is. This tests for existence. You need to trace the other way for completeness]

-obtain a receivables confirmation and agree to individual accounts in the sales ledger – tests for existence [and ownership/rights]

-Calculate receivables turnover and receivables days and compare to previous year and industry data – tests for valuation – does this test also for existence and completeness? [Just valuation, really.]

– for a sample of credit notes issued after year end and which relate to end of year receivables determine the amount of allowance to be made against end of year receivables- tests for valuation

– review the receivables listing for any credit balances that need to be transferred to creditors – tests for classification.

revenue:

-for a sample of sales orders trace back to relevant invoice – tests for completeness

-for a sample of invoices recorded in the sales ledger trace back respective gdn and sales order – test for occurence.

-calculate gross profit margin as a % of sales and compare to previous years figures – tests for completeness , occurence and accuracy

– for a sample of gdn pre and post year end trace respective invoice and ensure recorded in the correct accounting period – cut off

– calculate sales returns as a % of sales and compare to previous years – cut off [and occurrence]

– For a sample of invoices review revenue account to ensure correct classification – test for classification.

BPP also lists the following but cannot get the rationale behind them:

test whether discounts have been properly applied by recalculating them for a sample of invoices – this is listed under cut off. As per my reasoning this would be more appropriate as a test for accuracy – any suggestions.[I think cutoff is also relevant – if an invoices is dated 15/12 and paid 10/1, the following year, attracting a discount you have to decide which year should bear the discount. A cash discount for prompt payment would not affect revenue; it would affect discounts given]

test the correct calculation of tax on a sample of invoices – as per above included under cut off but think would be more appropriate as a test for accuracy. [And classification as VAT should not be included in sales]

Was thinking about receivables confirmation BPP list it only under the existence assertion and as per your reply above you suggested that it also tests about rights and obligations.
Wouldn’t also test for completeness that is if a blank confirmation is sent and the debtor replies back with a list of invoices one can determine if all invoices have been recorded correctly and therefore test for completion. On the same basis if the debtor confirms the amount or else states that there are any disputed items would this also test the valuation assertion? Is my reasoning correct? [Provided letters are sent to those who appear to owe nothing it will help with completeness; valuation is not usually included because devious customers who have no intention of paying could confirm the amounts so as not to raise any suspicion about intentions to default]

My final question is regarding calculating receivables turnover and receivables days:

you have confirmed that it tests for valuation only, however why does comparison for payables turnover and payables days test for existence, valuation and completeness whereas receivables turnover tests only for valuation? Since the tests are the same shouldn’t we get the same results with the only difference that one relates to payables and one to receivables?

Does this has to do because with receivables we test for overstatement and for payables we test for understatement? [On reflection, I think this would also give some evidence about existence and completeness]