DC 116 Receivables Audit Procedures The ABC Appliance Compan

DC 11-6 Receivables Audit Procedures. The ABC Appliance Company, a manufacturer of small electrical appliances, deals exclusively with 20 distributors situated throughout the country. At December 31 (the balance sheet date), receivables from these distributors aggregated $875,000. Total current assets were $1.3 million. With respect to receivables, the auditors followed the procedures outlined below in the couOof the annual audit of financial statements: 1. Reviewed the system of internal control and found it to be exceptionally good. 2. Reconciled the subsidiary and control accounts at year-end. 3. Aged the accounts -none were overdue. 4. Examined detailed sales and collection transactions for February, July, and November, 5. Received positive confirmations of year-end balances Required: Criticize the completeness or incompleteness of the above program, giving reasons for your recommendations concerning the addition or omission of any procedures. (o 2000, American Institute of CPAs. All Rights Reserved. Adapted by permission)

Solution

Verification of asset is an important audit process. It includes inspection of assets, where it is practicable, and collection of information about them on an examination of documentary and other evidences so as to confirm:

The verification of assets is primarily the responsibility of the managment of the company. The auditor\'s function in the circumstances is limited to an appraisal of the evidence, their inspection and reporting on matters effecting their valuation, existence and title. Principally, the auditor is required to verify the original cost of assets and to confirm that such a valuation is fair and reasonable.

In the given question, Receivables from distributors are the major component of the current assets of the company.

In the given question, the auditor has planned and performed audit procedures based on the standards, however it shall also include the above mentioned audit procedures to conduct audit effectively and efficiently. Further, the sales, receivables and collection transactions for the months of January and December shall also be examined in details.