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Hi Sir,
If we talk about valuation of receivables the valuation sound like the receivables is not properly valued .but when you see the procedures for the valuation of receivables they are all about the recoverability of the receivables like reviewing the age analysis report we look to the old items which are not yet settled .
So how you interpret the valuation assertion here in relation to the receivables?
Thanks
Valuation = carrying amount in SoFP = a gross amount less any allowances
(It is a general principle of financial reporting that assets cannot be stated at more than their recoverable amount)For PPE = Cost/revaluation – allowance (accumulated depreciation)
For inventory = Cost – allowance (to write down to NRV)
For receivables = Invoiced amounts (is cost to customer) – allowance (for BDD/impairment losses)The D/E for invoiced amounts is Dr Receivable Cr Revenue … the inherent RoMM in revenue is always thoroughly tested – so this aspect of receivable is also tested.
The RoMM in the valuation of receivables therefore arises in the adequacy (completeness) of the allowance … yes customers owe the gross/invoiced amount, but are they willing/able to pay?
Thanks Sir,
So do you mean to say that the main problem in the valuation of receivables is the adjusted allowance.
So we don’t have to consider how the price x quantity was calculated ,whether the price was correct or not ,and whether mathematical calculation was correct or not .
these things which are confusing me to understand the valuation correctly.
Thanks.
Hi Sir,
specifically for the calculations and breakup of the sales invoices are these important assertions
because I a want to link these things and how they affect the valuation assertions of receivables.
Thanks,
An auditor would test controls and most likely some tests of details as well on sales invoices which would cover the assertion of accuracy for the transactions (= revenue) and the related balance (= trade receivables).
An auditor might check the make up an trade receivables balances (i.e. to specific invoices/goods despatch notes) as an alternative procedure to confirm the existence (i.e. where there is no reply to external confirmation request).
But the risk of misstatement in valuation that the auditor must respond to revolves around the allowance.
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