Imagine that you were auditing accounts receivable balances to confirm sales and found significant discrepancies between the recorded account balances and returned confirmations from custom

 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 a rationale for your recommendation 

Respond:

Accounts receivable is frequently the most significant asset a company has. Hence, auditors tend to spend considerable time gaining assurance that the amount of the stated asset is reasonable. Here are a few of the accounts receivable audit procedures that can be followed: Trace receivable report to the general ledger. The auditors will ask for a period-end account receivable aging report, from which they trace the total to the amount in the accounts receivable account in the general ledger. (If these totals do not match, you may have a journal entry somewhere in the general ledger account that should not be there). Calculate the receivable report total. The auditors will add the invoices on the accounts receivable aging report to verify that the total they traced to the general ledger is correct.

The preceding list of audit procedures is designed to detect a variety of audit risks, such as: that receivables do not exist, incorrect receivable balances, and dummy accounts that reflect bad debt like sales transactions not keyed in the right period.