Question

Imagine that you were auditing accounts receivable balances to confirm sales and found significant discrepancies between the recorded account balances and returned confirmations from customers. Recommend an alternative approach to confirming sales revenue. Provide rationale for your recommendation.

Answer 1

Hello,

Firstly Find out those entries which are causing the difference. The Major causes of difference can be:-

Inventory-May be the inventory has been recorded as sold but it is still lying in the stores and received at a later date by the customer. And when it has been received then it is recorded as purchased by the customer.

Cash/ Bank- It happens when customer gives the check but it is posted at a later date by the supplier in his books. So the difference could be out of these reasons. Check the Bank Reconciliation statment.

Incorrect Posting in the customer account- It can happen when a different customer account has been debited or credited which can cause a difference in the recorded confirmation.

Difference in Discount, Credit and Debit notes- Check whether discount given is recorded in the books of account. Entry for goods returned or Faulty products is there.

If the Difference is Not out of these. Then the Auditor should consider its effect on his Opinion on the financial statments. If he cannot give his opinion considering the amount involved then he should issue disclaimer of opinion.

Thanks for Reading. Hoping for a Great Response.