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CA Ravi Taori

QNO B/S (Trade receivable, Existence) Old Course – (SM20/SM21/N21M)
AIFS.38 Bhaskar CNO-AIFS-P2.080 New Course – (SM25)
Write the audit Procedure for verification of existence of Trade Receivables.
➢ For Verification of Existence of Trade Receivables, the auditor should check the following:

Related to Controls:
• Check whether there are controls in place to ensure that invoices cannot be recorded more than
once and receivable balances are automatically recorded in the general ledger from the original
invoice. Ask for a period-end accounts receivable aging report and trace the balance as per the
report to the general ledger.
• Check whether realization is recorded invoice-wise or not. If not, check that money received from
debtors is adjusted chronologically invoice wise and on FIFO basis i.e. previous bill is adjusted
first.

Match & Reconcile:
• If any large balance is due for a long time, auditor should ask for reasons and justification for the
same.

Direct Confirmation Procedures:
• A list of trade receivables selected for confirmation should be given to the entity for preparing
request letters for confirmation which should be properly addressed.
• The auditor should maintain strict control to ensure the correctness and proper despatch of
request letters. It should be ensured that confirmations as well as any undelivered letters are
returned to the auditor and not to the client.
• Any discrepancies revealed by the confirmations received or by the additional tests carried out
by the auditor may have a bearing on other accounts not included in the original sample. The
Com.
• Where no reply is received, the auditor should perform alternate procedures regarding the
balances. This could include:
• Agreeing the balance to cash received subsequently.
• Preparing a detailed analysis of the balance, ensuring it consists of identifiable transactions and
confirming that these revenue transactions actually occurred. (examination in depth for those
balances)
• If there are any related party receivables, review them for collectability as well as whether they
were properly authorized, and the value of such transactions were reasonable and at arm’s
length.
• Check that receivables for other than sales or services are not included in the list.
• Review a trend line of sales and accounts receivable, or a comparison of the two over time, to
check if there are any unusual trends i.e. perform Analytical procedures.. Make inquiries about
reasons for changes in trends with the management and document the same in audit work
papers.
Author’s Note:
Content given in module and our notes as compared to content in above answer is little bulky, because ICAI
has trimmed the answer. Specially they have trimmed points related to Direct confirmation.

QNO B/S (Trade Receivable, Completeness) Old Course – (N22R/N22E/M23M)
AIFS.38.50 Bhaskar CNO-AIFS-P2.080
While auditing books of accounts of SOLAR Ltd., you observed that an amount due from a debtor for
invoice issued on 31.03.2022 has not been recognized in the books of accounts. As an auditor, you want
to ensure that all trade receivable balances that are supposed to be recorded have been recognized in
the financial statements. How will you achieve the stated objective?
OR

PK Pvt Ltd, based in Moradabad, is engaged in export of brassware goods. The company has huge export
receivables as on 31st March 2022. It is also analysed from Export Sales account of the company that
large number of small shipments were almost despatched daily during month of March 2022. List out
few audit procedures you would adopt as an auditor to verify completeness assertion of export trade
receivables.
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