Audit and Accounting > Accounts Receivable

Tests of Accounts Receivable or the Sales Ledger are usually of validity. Items of particular concern are old invoices, unmatched cash and large balances, particularly where customers are in difficulty. These can all be picked up with exception tests.

External auditors may wish to perform a circulisation by choosing the required balances and exporting to a word processor mail merge facility.

Addresses are probably held in a master file separate to the transactions. However, accounts receivable data is often obtained by requesting statements as a print report and reading these into IDEA. Care must be taken to ensure statements have been produced for all accounts.

The following are commonly used tests (grouped by type).

Analysis

  • Profile debtors using stratification to see how many large debts there are and what proportion of value is in the larger items.
  • Analyse average sales amount by customer, sales representative, product, region, etc.
  • Stratify and summarise customer information to create customer profiles.
  • Generate summaries by customer, invoice, amounts, products, etc.
  • Profile customers' purchasing cycles to improve profitability.
  • Report and automatically age total receivables in any format.

Calculations

  • Cast (or total) the file. It often pays to separate out debits and credits
  • Determine carrying costs by comparing days in collection by customer
  • Determine average sales amounts by product, sales representative, region, etc.
  • Produce an aged debt analysis. (Consider how to deal with unallocated cash and credit notes. IDEA, by default, ages these on their date rather than allocating against oldest item or any other treatment. It is often worthwhile splitting the file into invoices, unallocated cash, etc. using multiple extractions, and then aging the individual files).
  • Re-value foreign debts
  • Check transaction totals to the balance on each account.
  • Calculate lost revenue from unpaid carrying charges by client, etc.
  • Calculate day to payment and summarise by client, region, sales representative, etc.
  • Show variances between delivery documents and invoices

Exception Tests

  • Identify old items (e.g., > 3 months old)
  • Identify large balances either in their own right or compared to turnover
  • Select accounts for which no movements have been recorded in a set time
  • Report credit balances
  • Identify unmatched cash or credits
  • Test for items with dispatch dates or numbers outside the expected range
  • Identify part payments of debts
  • Identify invalid transaction types
  • Customer addresses that are "care of" or flagged not to be sent out
  • Identify high value credit notes, balances, and invoices
  • Identify credits taken beyond discount terms
  • Identify accounts without recent activity for sales follow-up
  • Identify credit limit exceptions
  • Look for lost revenue from unpaid carrying charges by client, etc.
  • Identify accounts without recent activity for follow up by sales reps

Gaps and Duplicates

  • Identify for duplicate invoices (both invoice number and customer/value), credits or receipts, in any order.
  • Report gaps in sequences of invoices generated

Matching and Comparing

  • Compare the balance on an account with its turnover
  • Compare balances with credit limits and report exceptions (e.g., accounts with balances in excess of their credit limits or accounts with no credit limits etc.)
  • Compare customer balances with credit limits to identify credit policy exceptions

Sampling

  • Select samples (random or specific) for functional testing and circularisation (and produce circularisation letters)