WP #

Audit of [Click here and type audit name]

Accounts receivable/credit & collections audit program

Description
Revision Info

This program was last reviewed/updated on [Click to Insert Date here]

Step

Audit Procedure

I.
Objectives of the Review
1.
2.
3.

Evaluation of compliance with corporate policies and

procedures.
Evaluation of overall efficiency and effectiveness of
process internal controls and procedures.
Evaluation of processes and practices against known
best practices.

II.

Work Program Steps

Planning:
a) Review known best practices and research the
internet.
b) Set up binder.
c) Develop project plan and determine scope.
d) Prepare budget.
e) Plan a coordination meeting with Process Owner.
f) Obtain Accounts Receivable process/functional
overview and expense allocation.

4.

Obtain a copy of Accounts Receivable and Credit &

Collections policies and procedures. Review procedures
prior to beginning fieldwork. Draft any questions that
may be asked during interviews and while process
mapping.
Review the following known best practices:

Eliminate barriers to payment by offering

customers multiple payment options, flexible
billing cycles, and incentives to pay early.

Create a single point of contact for all incoming

customer calls regarding payments and use
technology to route the calls to the appropriate
service representative or automated activities

Electronically receive and post customer

payments to the billing system in real-time to
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Audit of [Click here and type audit name]

Step

Audit Procedure
reduce processing costs and expedite cash flow.

Ensure that all employees with customer contact

work together to deliver a consistent message to
the customer regarding companys credit policies
and goals.

Use credit scoring to assign the customer a

credit rating that will trigger appropriate sales
and collections treatment.

Continuously update customers credit ratings

using a behavioural scoring system which
monitors customer payment behavior, usage
activity, and total customer account exposure
versus assigned credit limits.

Use the credit and collections process to

enhance customer satisfaction.

Develop, monitor, and motivate collections

specialists using individual and team
performance measures.

Use performance measures to select and

monitor outside collection agents, if it is costjustified to employ them.

Automatically initiate all treatment actions based

on a pre-programmed, customized treatment
timeline that details specific action steps for the
initial identification of delinquent account
customers based on customer credit rating/class.

Prioritize delinquent accounts for collections

follow-up, allocate appropriate collections
resources, and provide real-time access to
customer information.

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5.
6.

Audit of [Click here and type audit name]

Benchmark company accounts receivable process and

statistics to other similar companies (if applicable).
Based upon the interviews, gain an understanding of the
following areas:

Overall accounts receivable process

Customer credit rating system/scoring process

Order entry process (High level review of A/Rs

role in the order entry process i.e. credit
classification, etc.)

Process for monitoring of credit standings

Reconciliation of shipped items to invoices; G/L

reconciliation

Invoicing process

A/R cash application process

Process for collection of overdue amounts

Process for writing off over due receivables

Management reporting (including process

performance metrics)

Reserve process (Coordinate with external

auditors to determine their process for review the
companys reserve values to ensure that there is
no duplication of effort).

Compare all processes to known best practices (if

applicable) to determine any suggestions for process
improvements.
7.

Obtain an understanding and evidence of the accounts

receivable/credit & collection process by performing
the following transaction testing:

Review the company's A/R trial balance for

unusual and/or large items and investigate, if
necessary. Items should be > 60 days and > 5%
of total A/R balance.

Review detail of significant past due balances

and discuss with management. Obtain and
document the probability of collectability and
plans for collection.

Verify compliance with existing policies and

procedures.
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Ensure completeness of recording.

Verify customer payments made.

Verify accuracy of recording.

Review credit due dates aged amount.

Verify proper authorizations (if necessary).

Select 10 20 cash receipts. Ensure that all

receipts are posted in a timely manner and
procedures are in compliance with established
policies and procedures.

Select 10 20 invoiced transactions. Ensure that

invoicing procedures occur in a timely manner are
in compliance with established policies and
procedures.

Review credit ratings for 10 customers. Ensure

that credit classifications are in alignment with
scoring policies. Document all discrepancies.

Obtain the list of credit memos issued for the

Q49X and Q19Y. Select 10 items and trace to
supporting documentation. Ensure that they were
issued and approved in line with corporate policy
and procedures.

Obtain an analysis of Allowance for Doubtful

Accounts. Verify that the allowance is adequate
and has been calculated in line with corporate
policy.

Review A/R reconciliation to G/L verify

timeliness.

Review A/R reserved amounts determine

method of calculations and verify reasonableness.

Review/evaluate management reporting

reports/reconciliations (including budget to actual
commission expense, target earnings, quotas, etc.)
8.

Obtain the following background information:

Number and dollar value (absolute) of invoices

for the last six months obtain soft copy of
information

Current aging of the receivables identify high

value invoices, credit notes, etc.

Numeric sequence (search for duplicates &

missing invoices)

Receivables by location (i.e. U.S., Europe,

Asia, etc.) obtain soft copy of the information
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Percentage of debit/credit memos by location

(i.e. U.S., Europe, Asia, etc.) obtain soft
copy of the information

Match billings to shipping reports for quantities shipped

but not billed; matching billing date to shipping date
determine the time gap
9.
10.
11.
12.

Discuss findings with management prior to drafting audit

report.
Draft final report in conjunction with process owner.
Distribute final report as prescribed by internal audit
distribution list.
Schedule follow-up as appropriate.

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