in a scenario, the finance director releases 1.5m of the receivable allowance.
the question is basically an audit risk question and my question relates to the last part of this question
part (c) of the questions asks to describe 2 substantive tests which will obtain sufficient appropriate evidence for the above.
the examiner gives several procedures, one of which is:
"Review whether there are any post year end cash receipts for the moving/old receivable balances"
in writing down the answer, are we not supposed to add " ... to ensure that old/slow moving balances are indeed being paid off"
my question is not whether i understand the procedure but rather how do i describe it.
can you shed some light on it please
thanks
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Substantive procs
That's an important question you asked. I would also like to benefit from this.
In my opinion however, the question is about the provision stated in SOFP as approved by the FD. Therefore scrutinizing debit entries in the cash book soon after year end, credits to the receivables account soon after year end, reviewing individual customer accounts, maybe thorough examination of recent correspondence will all assist the auditor in determining whether there shoul be any adjustment to the provisions figure. In other words, does the status of provided receivables seem to have changed after year end. Maybe the payment has been made and all the double entry has correctly been done except for adjusting the provision figure. If not, the financial statements maybe misstated. Looking at the provisions amount above it seem a really material to me thus could result in a material misstatement.
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