The audit of Educational Books Distributer Ltd is being conducted by John Jones Auditors. This company supplies books to over 1,000 schools throughout Australia and New Zealand. The accounts receivable records are maintained on the company computer system.
John is planning the end of year audit and has held discussions with the IT department. His aim is to get help in achieving the balance-related audit objectives. The accounts receivable file contains the following details:
Customer code; customer name; customer address; unpaid invoices details; details of all invoices issued in the current month; details of all cash receipts for the current month; records of all journals entries this month.
Describe FIVE ways by which a software program provided by the IT department could help John in the audit of the accounts receivable balance of Educational Books Distributer Ltd.
In following ways software program provided by IT department can be helpful in the audit of accounts receivable –
1 ) USE OF DEBTORS AGING REPORT GENERATED BY SOFTWARE – AN AUDITOR CAN USED THE DEBTORS AGING REPORT USING SOFTWARE AND CAN FOUND THE DEBTORS WHICH ARE VERY OLD OR HAS NOT PAID FROM VERY LONG. AND CAN ASK FOR REASON FOR THE SAME FROM MANAGEMENT. THERE CAN BE CHANCES OF BORROWING MADE BY COMPANY SHOWN AS DEBTORS.
2) REVIEW OF SALES RETURN LOG – The auditor can check the sales return log using software to see whether there is large amount of sales return made by customer after the audit period, which can show that the company shipped more goods just to show high turnover in its books of accounts and for showing sound financial statement.
3) Review Receivable report to General ledger – the receivable report and the general ledger balance shold match with one another. If it doesnt then there can be a journal entry somewhere in general ledger that should not be there.
4) Test data using software – the auditor can arrange for dummy data to be processed to see wether the accounting, accounting code, reports generated, controls applied in the software are correct.
5) Balance confirmation using customer data maintained in software – the auditor can select some large unpaid account receivable on random basis for balance confirmation directly from them using customer data maintain in software.