2. RECEIVABLES Chapter 11 Juan M. Garcia Merced Cont 4017

3. CPA Juan M. Garcia Merced Sources and Nature of Receivables Includes claims against customers, loan to officers, loans to subsidiaries, tax refunds, advances to suppliers, notes, and insurance claims.

4. CPA Juan M. Garcia Merced Auditor’s Objectives - Receivables Substantiate the existence of receivables and the occurrence of revenue transactions Establish the completeness of receivables and revenue transactions Verify the cutoff of revenue transactions Determine that the client has rights to recorded receivables Establish the proper valuation of receivables and the accuracy of revenue transactions Determine that the presentation and disclosure of receivables and revenue are appropriate

5. CPA Juan M. Garcia Merced Audit Time for Receivables Auditors devote a larger proportion of the total audit hours to receivables due to materiality and audit risk considerations. Receivables are an integral part of revenue recognition and net income.

6. CPA Juan M. Garcia Merced Audit Program – Substantive Procedures for Receivables

7. CPA Juan M. Garcia Merced Obtain an aged trial balance of receivables and trace or reconcile to the general ledger

8. CPA Juan M. Garcia Merced Obtain analyses of notes receivable and related interest Note receivable AmountInterestDue dateCollateral Yale, Inc.$10,0008%12-31-2003None Mr. White$ 3,50012%06-30-2004None $13,500

9. CPA Juan M. Garcia Merced Confirm receivables with debtors – Positive or Negative Confirmations

10. CPA Juan M. Garcia Merced Our auditors, [Name], are conducting an audit of our financial statements. Please confirm the balance due our company as of [Date], which is shown on our records as $. Please indicate in the space provided below if the amount is in agreement with your records. If there are differences, please provide any information that will assist our auditors in reconciling the differences. Please also indicate any special sale or payment terms related to this balance. f Please mail your reply directly to [Audit Firm’s Name and Address] in the enclosed return envelope. PLEASE DO NOT MAIL PAYMENTS ON THIS BALANCE TO OUR AUDITORS. Very truly yours, [Officer’s Signature and Title] ________________________________________________________________________________________ [Client’s Name] To [Audit Firm’s Name] d The balance due [Client’s Name] d of $ d as of [Date] d is correct with the following exceptions (if any) _____________________________________________________________________________________________________ _________________________________________________________________ e Signature _______________________Title _ e Date _______ e Positive Confirmations

11. CPA Juan M. Garcia Merced Negative Confirmation Our auditors, [Name], are conducting an audit of our financial statements. Our records show an amount of $ d due from you as of [Date]. If the amount is not correct, please report any differences directly to our auditors, [Audit Firm’s Name and Address], using the space below and the enclosed return envelope. NO REPLY IS NECESSARY IF THIS AMOUNT AGREES WITH YOUR RECORDS. PLEASE DO NOT MAIL PAYMENTS ON ACCOUNT TO OUR AUDITORS. Very truly yours, [Officer’s Signature and Title] ______________________________________________________________________________ [Company Name] Differences Noted (If Any) The balance due [Client’s Name] d of $ d at [Date] d does not agree with our records because (no reply is necessary if your records agree). ______________________ e Signature Title _______________________ e Date ____________________ e

12. CPA Juan M. Garcia Merced Review the year end cut-off of Sales Transactions

13. CPA Juan M. Garcia Merced Perform analytical reviews for accounts receivables, notes and revenues Gross profit percentage Accounts receivable turnover Number of days in receivables Sales comparisons per month Sales per square foot

14. CPA Juan M. Garcia Merced Determine adequacy of allowance for uncollectible accounts

15. CPA Juan M. Garcia Merced Ascertain whether any receivables have been pledged Review bank confirmations Review legal letters Review letters or confirmations from creditors Read contracts Read board of direct. minutes

16. CPA Juan M. Garcia Merced Investigate any transactions with or receivables from related parties From directors, employees, affiliated companies, and determine whether the transaction were: Properly authorized and recorded. Adequately disclosed in the financial statements

17. CPA Juan M. Garcia Merced Evaluate financial statement presentation and disclosure of receivables and revenue

18. CPA Juan M. Garcia Merced Questions?