Confirmation Procedure of Account Receivable

Topics: Accounts receivable, Confirmation, Balance sheet Pages: 4 (1221 words) Published: November 12, 2012
Steps In Confirmation Process
The steps in the process of confirming receivables follow:
Step-1. Obtain Aged Schedule of Accounts Receivable
The auditor should obtain an aged schedule of accounts receivable as of the confirmation date. He or she should apply the following procedures to this schedule: Determine that totals are correct.
Compare all or a selected sample of account balances with the account balances in the accounts receivable subsidiary ledger. Investigate credit balances.
Step-2. Select Accounts for Confirmation
Auditors have used, and some continue to use, judgment in selecting accounts for confirmation. Statistical sampling methods, however, are ideal for the selection process. Whatever method of selection is used, the auditor generally considers the following accounts: [1]. All accounts with a balance over a predetermined amount. The predetermined amount is based on the auditor’s assessment of materiality. [2]. Some or all accounts with zero balances.

[3]. Accounts with old unpaid items, especially when subsequent sales have been paid. [4]. Accounts written off during the year under review.
[5]. Accounts with entities related to the client but not audited by the auditor. [6]. Certain accounts that appeared on the prior year’s accounts receivable schedule but not on the current year’s. [7]. Accounts with credit balances:

Occasionally, the client will not want confirmation requests sent to these accounts. If the amounts are material, it might result in a scope limitation; however, this is generally not the case. If accounts with credit balances are not confirmed, alternative auditing procedures should be applied. [8]. Of the remaining accounts, a representative portion both in dollar amount and number of accounts should be selected.  

Step-3. Prepare and Mail Confirmation Requests
The auditor should observe the following procedures in preparing and mailing confirmation requests: [1]. Prepare schedule of accounts to be confirmed....
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