Question

G) The credit controller of Fashion Designers Ltd has provided you with an aged debtor’s trial balance as at 30 November 1993. There are over 5000 individual accounts distributed over a wide range of values. The system of internal control over debtors has been assessed as satisfactory and reliable.
1) What audit objectives would you be concerned with in testing the trade debtor’s balance?
2) Describe the steps that you would include in an audit program to test the trade debtors balance as at 30 November 1993.
3) What further testing would you perform as at year end?
4) What analytical review procedures could be used to examine the possible overstatement or understatement of the provision for doubtful debts?

Answer 1

Internal controls are very important for adherence with company polices and procedures defined for the processes of the company.

1. Audit Objectives: Debtors represents to amount receivable from customers. Audit checks are required to implemented in order to check the bogus sales which has not be realized which leads to misreporting of revenue of the company. Every auditor must read the agreements and policies with the customers and there must be adherence with that.

2. Audit Program: Auditor must ask for debtors ageing from the client and that needs to be checked on samples basis in order to check the accuracy of the data. Post that auditor should select the samples of agreements and the terms & conditions should be fulfilled.

3. Further Testing: For this step, auditor shall check the subsequent realization from debtors in order to identifying the bogus parties.