Summary

 

In performing these procedures, the elements of timing, accuracy, completeness, reasonableness, and disclosures pertaining to the company's accounts receivable assets are assessed. The result will determine whether or not the company's financial reports present fairly the results of business operations in this particular aspect.
In forensic accounting, the major deviations from the standards of these elements will provide the leads for the examiner's investigative work. These audit procedures for accounts receivable are useful in unraveling the typical anomalies committed by employees and companies involving the company's accounts receivable items. (See the article featuring Typical Accounts Receivable Fraud Schemes for more details).

Accounting Basics: no details

• Determine the procedures implemented for processing and approving a customer’s credit account. There should be a responsible officer or approving committee involved before credit is approved.

• Review the folders maintained for each AR customer and check the completeness of the required documents as bases for granting of approval.

• Determine if photocopies on file have identifying marks to show that they were verified against the original by the control officer.

• Check the appropriateness of the documents submitted: proof of employment, proof of salaries earned, credit scores, and credit reports.

• Review copies of official receipts issued to customers and test-check prices appearing on sales invoices and delivery receipts.

• Take note of formally communicated customer complaints and what actions were taken to thresh-out grievances. Find out if any corrective measures were instituted and, if necessary, investigate the actions taken to address the root cause of the problem(s).

• Ascertain if the OR series were issued chronologically with no breaks in the serial numbers.

• Conduct a physical inventory of all unissued ORs, Sales Invoices, and Delivery Receipts; and take note if they are in the custody of the control officer, properly secured under lock and key. Refer to the printer's delivery receipt in determining the completeness of serial numbers.

• Ascertain if job rotations between clerks, bookkeepers, and cash custodians take place and determine the time interval it takes for said rotation to take place.

Basic Audit Procedures for Accounts Receivables

Cashier or Collector

• Conduct a cash-count of money presently held on hand by the cashier or collector.

• Ascertain if any collections from the previous day’s transactions are included and check the cash register’s tape if these monies were actually received after the depository bank's closing time. The machine tape should bear the identifying marks of the control officer, to denote the start-off point for undeposited collections.

• Verify if this was included as the previous day’s transactions and properly included in the cashier’s daily transaction report.

• Ascertain that cash-collections received before the depository bank’s closing time are deposited to the company’s bank account as a matter of procedure.

• Observe any instances that the cashier or collector took part in the recording of cash collections in the company's books, at any time while acting in his or her capacity as cash custodian or collector.

The Objectives, Extent, and Scope of Audit Procedures

Audit procedures are called audit programs by examiners, and they merely serve as guidelines and checklists of actions to perform during audit engagements. To provide an example, we focused on the details of the audit procedures for accounts receivables (AR), which we present in the succeeding sections.
In actual practice, audit techniques or styles in performing these procedures, developed by examiners through their skills and expertise, contribute largely to achieving the best audit results within a specified time frame.
The objectives, the extent, and the scope by which these procedures are performed may vary according to the role of the examiner, as internal or external auditor. These roles and objectives are discussed in full in a separate article entitled Financial Statement Audit vs. Forensic Accounting.
The term “extent” refers to the percentage of documents test-checked for completeness or for accuracy of computations involved. An AR audit program may also include the tracing of transactions from the selling point, to payment activities, up to its final disposition as a paid-account, a past due account, a doubtful account, or as a bad debt, as they are verified via random sampling of substantial balances or material amounts.
The term “scope” refers to the period covered based on cut-off dates established by the internal or external financial auditors. To fraud examiners or forensic accountants, the scope refers to the specific account(s) under suspicions of fraud--where dates could go as far back as necessary

Sharon Allen Copes with Travel By Staying Hydrated, Listening to Kenny Chesney

 

Deloitte’s Sharon Allen recently had a little chat with our friends at FINS as part of their coverage of Women in the Workplace series over the next two weeks. Ms. Allen will be coasting into retirement as her second term as the firm’s Chairman (her preferred term) comes to end.

The Allen interview covers all kinds of fun stuff so let’s get to it, starting with those pesky regulators:

BREAKING: Republicans Don’t Like President Obama’s Tax Proposals

 

[K]ey Republicans have not responded positively to signals that President Obama will push for some tax increases in his deficit-reduction plan to be laid out this week. David Plouffe, a senior White House adviser, indicated Sunday that the president would reiterate his call to raise taxes on households making $250,000 and above and also signal a desire to look at other provisions in the tax code that wealthier taxpayers use to their advantage. In his fiscal 2012 budget, released in February, the president called for allowing the Bush tax cuts to expire for income above $200,000 for individuals and $250,000 for couples at the end of next year. That statement came roughly two months after a compromise with congressional Republicans had extended current tax rates for the richest taxpayers for two years. 

Ernst & Young sued over Lehman's collapse

 

Ernst & Young sued over Lehman's collapse

Here is the big news that might trigger your interest as an auditor.

One of the Big 4 accounting firms, Ernst & Young is facing a civil lawsuit in the US over the collapse of Lehman Brothers! New York's state attorney Andrew Cumo claims that New York's state attorney Andrew Cuomo claims Ernst & Young "sat by silently" as Lehman Brothers tried to conceal billions of dollars in debt from investors before its implosion. The lawsuit says Lehman ran a "massive accounting fraud".

It is claimed that Ernst & Young approved of Lehman's increasingly frequent use of a device known as Repo 105. The lawsuit alleges: "These Repo 105 transactions had no independent business purpose and were designed solely to enable Lehman to manage the company's financial balance sheet metrics."

The case centres on Lehman's use of an accountancy practice known as Repo 105, which involves temporarily removing money from the balance sheet to give the impression of greater financial strength. Mr Cuomo mentioned that, Ernst & Young should not have approved the accounts, knowing that the practice had been used so widely.

The lawsuit seeks more than $150 million in fees that Ernst & Young received from 2001 to 2008 as Lehman's outside auditor,plus other unspecified damages

Ernst & Young has responded, and claims that the firm is going to "vigorously defend" the lawsuit.