Page 175 - CA Inter Audit PARAM

CA Ravi Taori

Audit of Trade Receivable:
All Trade receivable balances that were supposed to be recorded have been recognized in the financial
statements. (COMPLETENESS): The auditor needs to satisfy himself of the cut-offs. Without a cut-off, sales
could be understated or overstated, hence there is a need to perform the following cut off procedure:

(a) For the invoices issued during the last few days (last 5 days of the reporting year) i.e. cut-off date and
which have been included in the debtors; check that the goods should have been dispatched and not lying
with the Company;

(b) Ensure that all goods dispatched prior to the period/ year-end have been invoiced and included in
debtors on a test check basis;

(c) Ensure that no goods dispatched after the year- end have been invoiced and included in debtors for the
period under audit.

QNO-- Trade Receivable Valuation Audit Procedures New Course – (S24M)
AIFS.38.52 Bhaskar CNO – AIFS-P2.080

CA J is appointed as statutory auditor of Sigma and Beta Limited for the year 2023-24. During the audit he
observed trade receivables amounting to ₹ 50 crores are reflected in the financial statements of the

company. He wants to obtain sufficient appropriate evidence to conclude that trade receivables have been
valued appropriately. Suggest few audit procedures in this regard.
Answer Few audit procedures to obtain sufficient appropriate audit evidence to conclude that trade receivables
have been valued appropriately are as under: -

• Review the process followed by the Company to derive an allowance for doubtful accounts. This will
include a consistency comparison with the method used in the last year, and a determination of
whether the method is appropriate for the underlying business environment.

• Obtain the ageing report receivable (both Dr/Cr balance).

• Also, obtain the list of debtors under litigation and compare with previous year.

• Scrutinize the analysis and identify those debtors which appear doubtful; discuss with management
about reasons as to why these debtors are not included in the provision for bad debts. Perform further
testing where any disputes exist.

• He should check if provisions are made at appropriate rates considering recoverability of amounts
due.

• Prepare schedule of movements of bad debts – Provision accounts and debts written off and compare
the proportion of bad debt expense to sales for the current year in comparison to prior years to see if
the current expense appears reasonable.

• Check that write-offs of the receivable balances have been authority appropriate approved by an
appropriate authority i.e. the Board of Directors in case of a company.

QNO— "TRADE RECEIVABLES (ageing schedule)" New Course – (M23M)
AIFS.38.55 Bhaskar CNO - AIFS-P2.080
Studymate Limited is a company engaged in the manufacture of stationery items. The company sells its
goods on credit. The debtors as on 31.03.2022, amounted to ₹ 10 crores. What is the disclosure
requirement for the company with respect to the ageing schedule of th e trade receivables in terms of
Schedule III (Part I) to the Companies Act, 2013?
Answer The following is the disclosure requirement for Studymate Limited with respect to the ageing schedule of
the trade receivables in terms of Schedule III (Part I) to the Companies Act, 2013

Trade Receivables ageing schedule.
(Amount in ₹ )
Particulars Outstanding for following periods from due date of
payment#
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