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Hi,
Could you please tell me how does the test of ‘comparing the level of prepayments to previous years’ ensures that receivables is materially correct and complete?
Thanks in advance.It only deals with completeness of prepayments, not amounts receivable from customers. Prepayments and receivables are often lumped together in the SOFP. Many prepayments are going to be regular each year. For example, insurance might always be paid on 1/10 for the next 12 months, so will always be 9 months paid in advance. Comparison with the previous year (a form of analytical review) will give some evidence as to completeness of the prepayments.
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