Reviewing the receivables;

              Bulletin HASKINS & SELLS 13
Reviewing the Receivables
THE purpose underlying the audit of
accounts receivable, as in the case of
all other assets, is to ascertain that the
client's figures represent an existing asset,
correctly stated and properly valued.
There are the further objects of finding out
whether proper accounting theories have
been used in setting up the asset, and
whether the accounts have been free from
manipulation during the period under
review.
The exact nature and extent of the veri­fication
may depend on a number of gov­erning
factors. One is the nature of the
engagement. In a verification of assets
and liabilities, or a balance sheet audit, as
it is frequently called, the objective prob­ably
would be simply a confirmation of the
figures shown by the client's books to be
due from others at the balance sheet date,
having in mind the character of items which
may be included under the caption. A
more detailed audit, on the other hand,
probably would comprehend a review of
the transactions for the period for evidences
of manipulation and error. The suspicions
of the auditor, either preconceived or ex­cited
by incidents during the course of the
engagement, would have considerable
weight in arranging the audit program.
Other factors may be the condition of the
records, size and nature of the business,
sales and collection policies, system of in­ternal
check in force, etc. Above all, the
needs and wishes of the client and his
willingness to pay for a detailed audit are
not to be lost sight of.
Verification as to correctness of the
client's statement of receivables probably
is in most cases the main feature of the
procedure. Perhaps the most satisfac­tory
way to verify balances in customers'
accounts is by confirmation from the
debtors direct to the auditor. This has
been opposed by a number of accountants
on the ground that most customers will
disregard statements and requests for con­firmation
sent to them, and will be more
likely to take the matter up with the
client's bookkeeper in case of a difference.
A preponderance of past experience, how­ever,
seems to have demonstrated the use­fulness
of the confirmation method in those
cases to which it is applicable. It is
almost certain to be laborious and expen­sive,
however, and an understanding con­cerning
its use should be had with the
client before proceeding.