1.

Work >
2. Careers >
3. Accounting & Auditing Jobs
Substantive Audit Procedures for Accounts Receivable
by Julie Davoren, studioD

Auditors use several techniques to analyze accounts receivable.

Related Articles
Goals & Objectives of the Independent Audit Process
Accounts Receivable Clerk Roles & Responsibilities
How Long Does My Employer Have to Fire Me After I Fail a Drug Test?
Alternatives to Random Drug Testing in the Workplace
Clinical Lab Scientist License Requirements
Substantive audit procedures are the activities that auditors perform to assess the risk of material misstatements or
instances of fraud at the assertion level. As opposed to the testing of controls, substantive procedures focus on
amounts and include detailed testing of classes of transactions, account balances and disclosures. Substantive
analytical procedures are also included.
Ads by Google

Download
Free Download

unzipper.com

Substantive Analytical Procedures

Auditors perform substantive analytical procedures at the planning and review stages of an audit. These procedures
include comparison of a company's financial information with comparable financial information from past records;
the company's anticipated results, such as forecast or budgets; or financial information of another company from
similar industry. Auditors conduct these comparisons at the transaction's class level and the assertion level, and they
generally ask management about the availability and reliability of the comparable information. If there are
differences, then an investigation must follow.
Verification by Confirmation
To verify completeness, valuation and cut-off assertions, auditors send confirmation requests to debtors and third
parties. They first test the reconciliation of accounts receivable balances to the general ledger. They then select
relevant account balance items either on a judgmental basis or using audit software, and prepare confirmation
requests for these items. They ask the recipients to respond with negative or positive confirmation and use the
responses to verify the company's information.
Performance of Alternative Procedures
External parties don't always respond to confirmation requests, and when they don't, auditors must perform
alternative audit procedures. This involves tracing subsequent cash receipt records or invoices and supporting
documentation. If the company didn't receive significant repayments from debtors in a subsequent period, the
auditors will address this concern with the organization's managers. To verify the valuation assertions, validity, and
recording and presentation, auditors also perform tests of the journal entries in accounts receivable and the
subsidiary ledgers. They also perform aging analyses to check long outstanding debts.
GAAP Considerations
Companies must prepare and present their financial statements according to a financial reporting framework, and in
United States, when companies share their financial information with the public, they must use generally accepted
accounting principles, or GAAP, to prepare their financial statements. Auditors, therefore, determine that the
accounting policies and procedures related to accounts receivables are appropriate and are applied consistently
according to GAAP. They also validate that the company presents and discloses its accounts receivable balances in
the balance sheet and its accompanying notes properly.