How would you audit trade receivables at year end?

What the interviewer wants to hear

• Reconciles the ageing listing to the ledger and checks its accuracy
• Sends external confirmations and handles exceptions and non-replies
• Checks cut-off of sales around year end
• Reviews subsequent receipts
• Evaluates the expected credit loss allowance and disclosures

Model answer

I start by getting the receivables ageing, checking that it adds up and agrees to the general ledger, and testing a sample of items to see they are in the right ageing bucket. For existence, I send positive confirmations to a sample of customers, focusing on large and old balances, keeping control of the process, and I reconcile any differences. For non-replies, I check receipts after year end and vouch invoices to orders and delivery documents. I test sales cut-off by checking dispatch notes and invoices a few days either side of year end, and I review credit notes issued after year end. For valuation, I review the expected credit loss calculation, overdue balances and disputes, and look for customers in financial difficulty. I also check for credit balances that should be shown as liabilities and that related party balances and disclosures are complete.

More medium Auditor questions

• You are planning the audit of a new client. How do you understand the business and assess risks?
• Walk me through how you attend a client’s physical inventory count.
• How do you run an external confirmation process for receivables, and what if customers do not reply?
• How do you design an audit sample, and what affects the sample size?
• How do you perform journal entry testing to address the risk of management override?
• Describe your audit approach for property, plant and equipment.
• How would you audit payroll expense for a company with 500 employees?
• Why and how would you reconcile revenue in the books with GST returns during an audit?
• What do you communicate to the audit committee during and at the end of an audit?