Know How The Auditor Evaluates The Sundry Debtors Acting In The Business Process
Primarily, the Sunday debtors indicate the cash amount that is recoverable from the customers for the goods sale or for the service rendering process made by the business company.
- For analyzing this, an auditor should utilize the following procedures and thereby, the book of debts or the Sundry debtors is evaluated after receiving a convenient schedule or the short-listed note of debtors from the client.
- Confirmation of the balances must be ensured from the debtors by sending them the confirmatory letters in advance.
- Detailed inspection of the ledgers can be done on a yearly basis.
- Further, the examination of debt position can be made for knowing the present status of the debts like it is bad or doubtful.
- Observance should be thoroughly done and use the legal service or present it if needed.
- An Arrangement should be made to send a confirmation letter regarding the balances maintained by the client as per the records and make sure the reply to this confirmation reaches back to his office directly.
All this process should be initiated within a gap of 15 to 20 days towards the year ending and that too under the supervision of any audit staff. So, once is reply is received, the accounts must be tallied with respect to the balance shown in the Debtors Ledger and the difference is properly reconciled.
- Further, the auditor should proceed to carry out a detailed observance of the debtors’ accounts in person and in cases, if the debtor’s number is large, then the method of test checks can be applied to ascertain the truth.
- During the ledger checking, an auditor should focus more on the things like the discount made, allowed rebates, any goods returning done or so.
- Before confirming with the Genuity of the debtor’s balance, the auditor has to check for the bad or doubtful types. If it is seen that the debtors hold a bad debt, then the financial statements will not be certified with a True and Fair view. Additionally, strict provision is made for analyzing the debtors’ age, total payment received till date, management and other financial opinions about the debtor. If the auditor fails with this provision, then he held liable for negligence.
According to the Company Act made in 1956, the debtors can be classified as the outstanding type that holds a period of more than six months and other major types. All these debtors need to be evaluated by the auditor.