Audit Work On Trade Debtors: Debtors Circularization (Part1of2)

by

A debtors’ circularization should be undertaken to obtain direct confirmation from the customer that the balance is correct.

The auditor should:

Obtain the client’s permission If this is not forthcoming, the auditor will have to decide if alternative procedure are available to overcome this e.g. extended testing of customers’ remittance advice

Decide the sample required. This will depend on:

    • the opinion formed regarding the reliability of the ledger during his work on the accounting system and internal control;
    • whether a positive or negative circularization is to be undertaken

    Select the sample. This should include NIL balances

    Control the posting of the letters

    Enclose a stamped addressed envelope to ensure that all replies are received by himself

    Send reminders if any replies are not received

    Investigate thoroughly any balances which are not agreed by the customers. Full explanation should be obtained and the auditor may have to perform additional testing to satisfy himself.

    Where no reply is received, the auditor should perform additional testing regarding the balance. This testing will include:

      • Agreeing the balance to cash received;
      • Agreeing the detail of the balance to the customer’s remittance advice;
      • Preparing a detailed analysis of the balance, ensuring it consist of identifiable transactions and confirming that these transactions occurred.

      Prepare a final summary of the results of the circularization and draw the final conclusion

        REFER TO MORE ARTICLES ON TOPIC ON AUDIT WORK ON TRADE DEBTORS

        Leave a Comment

        This site uses Akismet to reduce spam. Learn how your comment data is processed.