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.
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.
- Misclassification: Other receivables may be misclassified as long-term assets, which can negatively impact a company’s financial statements.
- Valuation: The value of other receivables may be overstated or understated, leading to a false representation of a company’s financial position.
- 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.
- 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.
- Contract Receivables: Contract receivables may be subject to incorrect recognition, measurement, or disclosure, leading to a misstatement of a company’s financial position.
- Trade Receivables: Trade receivables may be subject to incorrect recognition, measurement, or disclosure, leading to a misstatement of a company’s financial position.
- Uncollectible Receivables: Uncollectible receivables may be incorrectly recognized or recorded, leading to a misstatement of a company’s financial position.
- Impairment: Receivables may be impaired, which can negatively impact a company’s financial statements.
- Fraud: Receivables may be subject to fraudulent activities, such as falsifying records or inflating amounts owed, leading to a company’s financial position misstatement.
- Misappropriation of Assets: Receivables may be subject to misappropriation of assets, leading to a misstatement of a company’s financial position.
When auditing other receivables, auditors should focus on the following audit assertions:
- Existence: The receivables exist and are legally owed to the company.
- Rights and Obligations: The company has the right to collect the receivables and the obligation to pay any related obligations.
- Valuation: The receivables are recorded at the correct amount and are adequately valued based on the terms of the agreements and any related changes.
- Allocation: The receivables are appropriately allocated among the various accounts and are recorded in the appropriate periods.
- Completeness: All receivables are included in the financial statements.
- Presentation and Disclosure: The receivables are presented and disclosed following applicable accounting standards and regulatory requirements.
To assess the accuracy of the audit assertions, auditors should perform the following audit procedures:
- 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.
- Aging Analysis: Perform an aging analysis of the other receivables to identify trends or significant balance changes.
- Analytical Procedures: Use analytical procedures to identify unusual or unexpected trends in the other receivables.
- Inquiry of Management: Inquire of management regarding the collectibility of the other receivables and any associated risks or concerns.
- Substantive Testing: Perform substantive testing to assess the other receivables’ existence, rights and obligations, and valuation.
- Reconciliation: Reconciled the other receivables to the underlying supporting documentation to ensure accuracy and completeness.
- Review of Write-Offs: Review any write-offs of other receivables to ensure they are appropriately recorded and supported.
- Follow-Up on Outstanding Balances: Follow up on any outstanding balances to ensure they are still collectible and adequately recorded.
- Review of Disclosures: Review the disclosures related to other receivables in the financial statements to ensure they are complete and accurate.
- Risk Assessment: Assess the risk of material misstatement related to other receivables and perform additional audit procedures as necessary.