The audit objectives in auditing receivables are to verify that all authentic receivables are recorded accurately in the financial statements. To achieve this, the auditor reconciles subsidiary and general ledgers, confirms receivables with customers, analyzes subsequent cash receipts, and evaluates notes receivable and allowance for doubtful accounts. Pledging involves using receivables as collateral for a loan. Assignment transfers ownership of receivables to a lender in exchange for a loan. Factoring involves selling receivables to a third party at a discount. Discounting customer notes means selling notes before maturity, while discounting own notes deducts interest upfront from loan proceeds. A loan receivable is considered impaired if it is probable
The audit objectives in auditing receivables are to verify that all authentic receivables are recorded accurately in the financial statements. To achieve this, the auditor reconciles subsidiary and general ledgers, confirms receivables with customers, analyzes subsequent cash receipts, and evaluates notes receivable and allowance for doubtful accounts. Pledging involves using receivables as collateral for a loan. Assignment transfers ownership of receivables to a lender in exchange for a loan. Factoring involves selling receivables to a third party at a discount. Discounting customer notes means selling notes before maturity, while discounting own notes deducts interest upfront from loan proceeds. A loan receivable is considered impaired if it is probable
The audit objectives in auditing receivables are to verify that all authentic receivables are recorded accurately in the financial statements. To achieve this, the auditor reconciles subsidiary and general ledgers, confirms receivables with customers, analyzes subsequent cash receipts, and evaluates notes receivable and allowance for doubtful accounts. Pledging involves using receivables as collateral for a loan. Assignment transfers ownership of receivables to a lender in exchange for a loan. Factoring involves selling receivables to a third party at a discount. Discounting customer notes means selling notes before maturity, while discounting own notes deducts interest upfront from loan proceeds. A loan receivable is considered impaired if it is probable
The audit objectives in auditing receivables are to verify that all authentic receivables are recorded accurately in the financial statements. To achieve this, the auditor reconciles subsidiary and general ledgers, confirms receivables with customers, analyzes subsequent cash receipts, and evaluates notes receivable and allowance for doubtful accounts. Pledging involves using receivables as collateral for a loan. Assignment transfers ownership of receivables to a lender in exchange for a loan. Factoring involves selling receivables to a third party at a discount. Discounting customer notes means selling notes before maturity, while discounting own notes deducts interest upfront from loan proceeds. A loan receivable is considered impaired if it is probable
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QUIZ 3. ESSAY. Discuss briefly the questions below.
1. In auditing receivables, what are the audit objectives and how would you be performed to arrive at the most reliable information to express an opinion?
The audit objectives in auditing receivables are all receivables on the SFP are authentic claims of the entity, all authentic claims of the entity for receivable are included on the SFP, receivables are carried at their net realizable (collectible) value, the entity owns, or has a legal right to all the receivables on the SPF at the reporting date, and receivables are properly classified, described, and disclosed in the financial statements, including notes, in accordance with PFRS. In order to arrive at the most reliable information about the receivables, the auditor must reconcile the Subsidiary Ledger (SL) with General Ledger (GL), confirm receivables and review subsequent cash receipts, analyze notes receivable and related interest, evaluate the adequacy of the allowance of doubtful accounts, and etc.
2. Differentiate pledging, assignment and factoring of receivable.
Receivable financing is the financial flexibility or capability of an entity to raise
money out of its receivables. When the entity obtains a loan from a bank or any lending institution, the accounts receivable may be pledged as collateral security for the payment of the loan. While assignment of accounts receivable means that a borrower called the assignor transfers rights in some accounts receivable to a lender called the assignee in consideration for a loan and lastly, factoring is a sale of accounts receivable on a without recourse, notification basis . In a factoring arrangement, an entity sells accounts receivable to a bank or finance entity called a factor.
3. Discuss briefly how are customer’s note and own notes are discounted?
Discounting customer’s note means selling or pledging the customer’s note
receivable to the bank at some point prior to the note’s maturity date while discounting of own note is a transaction wherein the maker issues a promissory note to borrow a sum of money and the interest is deducted in advance thus, the proceeds from discounting were already reduced by the interest. 4. When do you considered a loan receivables as impaired?
A loan is considered to be impaired when it is probable that not all of the related principal and interest payments will be collected. If a loan is considered impaired, a loss is recorded and presented in the company’s statement of operations, in an amount representative of the excess of the cost basis of the loan over its fair value, and uncollectable interest previously accrued is charged off or an allowance for the interest is established. Any allowance for loan impairments should be fully documented with the appropriate analysis, and updated consistently from period to period.
