Auditing Cash, Revenue, and Receivables

The audit of cash and revenues and accounts receivable overlap in various areas of the accounts that are interrelated. A majority of business transactions or sales are either made on cash or credit. Thus, overlapping happens due to inadequate internal controls in an organization. The areas that experience the overlap include record keeping, asset custody, authorization, and reconciliation.  The recording of cash transactions has an impact on the accounts receivables and revenues (Stevanović, Belopavlović, & Moravčević, 2017). Overlapping happens with time because the recording of cash leads to automatic changes in the accounts receivables and revenues. The occurrence of bad debts affects accounts receivables because the transaction can only be completed by adjusting accounts receivables.  Overlapping can lead to multiple issues like errors that signify fraud. Auditors can approach the problem by making sure that organizations have enhanced internal control measures that eliminate the misstating of the balances of the accounts receivables.  Auditors achieve this by having a keen eye on the internal controls over revenue and cash receipts to be able to assess the financial statements assertions and associated control risk.  The test regarding the operating effectiveness of the controls is performed to determine the nature of timing, age, and to authenticate the existence of receivables and occurrence of transactions relating to revenue. This is necessary for asserting the completeness of receivables and revenue to ensure that there are appropriate disclosers.  Additionally, auditors approach the issue of overlapping by evaluating the suitability of the customer’s technique of revenue recognition and stipulated procedures for disclosing related party transactions and receivables. Besides, auditors can seek to trace receivable reports in the general ledger to determine whether they match or not. If the totals don’t match, the auditor will have to find a journal entry that is not supposed to be in the general ledger account.

References

Stevanović, S., Belopavlović, G., & Lazarević-Moravčević, M. (2017). Creative Cash Flow Reporting–the Motivation and Opportunities. Economic analysis, 46(1-2), 28-39.