To audit trade receivables, the auditor should perform the following steps:
- Understand the entity’s trade receivables and the related business processes: The auditor should obtain an understanding of the entity’s trade receivables, including the nature, timing, and amount of the receivables, and the related business processes, such as the sales and billing processes.
- Assess the risks of material misstatement in the trade receivables: The auditor should assess the risks of material misstatement in the trade receivables, taking into account the entity’s industry, the economic environment, the credit quality of the entity’s customers, and the entity’s internal controls.
- Develop an audit plan and audit procedures for the trade receivables: Based on the understanding of the trade receivables and the risks of material misstatement, the auditor should develop an audit plan and audit procedures for the trade receivables, including the nature, timing, and extent of the audit procedures.
- Test the trade receivables and evaluate the results: The auditor should test the trade receivables and evaluate the results, using appropriate audit procedures, such as confirmation, observation, inspection, and recalculation. The auditor should also evaluate the entity’s accounting policies and estimates related to the trade receivables, such as the allowance for doubtful accounts.
- Conclude on the trade receivables and communicate the findings: Based on the audit evidence obtained, the auditor should conclude on the trade receivables and communicate the findings to the entity’s management and the audit committee. The auditor should also evaluate the entity’s disclosure of the trade receivables in the financial statements.
