Audit Procedures for Other Receivables: A Guide to Mitigating Risks and Ensuring Accuracy in Financial Statements

Other receivables refer to amounts owed to a company by its customers, vendors, or other third parties.

These assets are typically recorded in the balance sheet as current assets and are essential to a company’s financial statements.

The accuracy of these accounts is critical to the overall financial health of a company, making it essential for auditors to perform thorough audit procedures to identify and mitigate any risks.

Nature:

Other receivables include a wide range of assets, such as trade, contract, and loan receivables. These accounts are considered short-term assets and are typically collected within a year.

The nature of these assets requires auditors to pay close attention to their age and collectability, as well as the underlying transactions that gave rise to the receivables.

Audit Risks:

1. Misclassification: Other receivables may be misclassified as long-term assets, which can negatively impact a company’s financial statements.
2. Valuation: The value of other receivables may be overstated or understated, leading to a false representation of a company’s financial position.
3. Allowance for Doubtful Accounts: The allowance for doubtful accounts may not be adequate, leading to the incorrect recognition of bad debts and a misstatement of the company’s financial position.
4. Loan Receivables: Loan receivables may be subject to incorrect interest rate calculations, incorrect loan amounts, or misclassification as other receivables, leading to a misstatement of a company’s financial position.
5. Contract Receivables: Contract receivables may be subject to incorrect recognition, measurement, or disclosure, leading to a misstatement of a company’s financial position.
6. Trade Receivables: Trade receivables may be subject to incorrect recognition, measurement, or disclosure, leading to a misstatement of a company’s financial position.
7. Uncollectible Receivables: Uncollectible receivables may be incorrectly recognized or recorded, leading to a misstatement of a company’s financial position.
8. Impairment: Receivables may be impaired, which can negatively impact a company’s financial statements.
9. Fraud: Receivables may be subject to fraudulent activities, such as falsifying records or inflating amounts owed, leading to a company’s financial position misstatement.
10. Misappropriation of Assets: Receivables may be subject to misappropriation of assets, leading to a misstatement of a company’s financial position.

Audit Assertions:

When auditing other receivables, auditors should focus on the following audit assertions:

1. Existence: The receivables exist and are legally owed to the company.
2. Rights and Obligations: The company has the right to collect the receivables and the obligation to pay any related obligations.
3. Valuation: The receivables are recorded at the correct amount and are adequately valued based on the terms of the agreements and any related changes.
4. Allocation: The receivables are appropriately allocated among the various accounts and are recorded in the appropriate periods.
5. Completeness: All receivables are included in the financial statements.
6. Presentation and Disclosure: The receivables are presented and disclosed following applicable accounting standards and regulatory requirements.

Audit Procedures:

To assess the accuracy of the audit assertions, auditors should perform the following audit procedures:

1. Review of Contracts and Agreements: Review the contracts and agreements related to the other receivables to ensure they are appropriately recorded and following the terms.
2. Aging Analysis: Perform an aging analysis of the other receivables to identify trends or significant balance changes.
3. Analytical Procedures: Use analytical procedures to identify unusual or unexpected trends in the other receivables.
4. Inquiry of Management: Inquire of management regarding the collectibility of the other receivables and any associated risks or concerns.
5. Substantive Testing: Perform substantive testing to assess the other receivables’ existence, rights and obligations, and valuation.
6. Reconciliation: Reconciled the other receivables to the underlying supporting documentation to ensure accuracy and completeness.
7. Review of Write-Offs: Review any write-offs of other receivables to ensure they are appropriately recorded and supported.
8. Follow-Up on Outstanding Balances: Follow up on any outstanding balances to ensure they are still collectible and adequately recorded.
9. Review of Disclosures: Review the disclosures related to other receivables in the financial statements to ensure they are complete and accurate.
10. Risk Assessment: Assess the risk of material misstatement related to other receivables and perform additional audit procedures as necessary.