Account receivable audit checklist

An account receivable audit is done to ensure the recording of account receivables is being done adequately. It looks into the procedures and controls used for recording account receivables and represents them fairly in the financial statements. 

What is an audit of account receivables?

Account receivables audit includes a thorough inspection of your financial documents. The auditors will verify the account receivables to ensure there is no fraud and the actual data is reflected in the financial statements. Auditing account receivables are mandatory once you cross a certain financial limit. It reflects the inflow of cash in a business. The audit will verify and authenticate your account receivables. The audit also makes sure there are no invoices unsent and that your customers are paying on time. 

Procedures for auditing account receivables 

Account receivable audit comprises of the following procedures:

• Analysing customer orders 

During the account receivables audit, the auditor compares the invoices you have sent to the orders made by the customers. It is ensured that they are the same. Any difference in the number means that you have recorded the details wrong. 

• Analysing account receivables and general ledger 

The total in the annual account receivables report should match what is entered in the general ledger under accounts receivables. A discrepancy indicates a wrong entry in the ledger. 

• Comparing invoices and shipping details

The auditor will compare the dates on your invoices with the dates of shipments and see if they match. They’ll also look at invoices sent out after the auditing period ends. This is done because your sales must be recorded in the correct accounting period. Thus, any invoices that should have been included in a previous period must be detected.

• Verifies account receivables

The auditor contacts your clients directly during this audit portion to validate any overdue account receivables as of the conclusion of the reporting period. This is done to ensure that the account receivables you’ve documented are correct. Customers with significant outstanding amounts are generally chosen first, then those with delayed bills, and finally, customers with lesser receivable balances.

• Verifies cash receipts 

The auditor will be looking for records of consumer payments. If the auditor cannot authenticate the accounts receivable with your customers directly, this is a backup option. If your customers pay you with cheques, the auditor searches for cheque copies and tries to authenticate them with the bank or by reviewing your bank statements.

• Verifying credit notes 

Credit notes are significant because they have the potential to influence future transactions. Customers can deduct the credit note amount from future payments for products or services. This impacts your account receivables since their payment differs from the initial invoice amount.

The auditor will go over the credit notes you’ve given your clients to make sure they were legally approved and issued at the right time. The auditor will also look to see if the conditions under which you issued them were legal and match the records of credit notes issued.

It’s ideal to have clear and easy-to-track records of your accounts receivable when an audit is on the horizon. It is not difficult to arrange your records manually in preparation for the audit. An automated accounting system will maintain your account receivables and keep them audit-ready, saving you hours of manual effort and helping you avoid costly mistakes. AR automation allows you to schedule invoices and payment reminders and update invoices with their relevant payment status.