Question

Audit - audit procedure

After doing one analysis on aging account receivable.

What risk are you addressing with this analysis? What management assertion about Accounts Receivable are you testing?

Answer 1

Account receivables are part of the overall revenue recognized in the financial statements of the firm. By auditing the account receivables and finding of its age, we are testing as to what is the average age of the account receivables and whether these are in line with our approved credit period. The risk that we are addressing is whether the account receivables recognised can actually be recovered from the market and turned into cash. Also it helps us understand if some of them have turned into bad debts and needs to be written off.

The management assertion that we are testing are whether the account receivables can be recovered from the market and whether these recognized as part of revenue are good or some part of them needs to be written off as prudent financial norms.