Substantive procedure for the valuation of receivables other than a receivables circularisation

Substantive procedures for the valuation of receivables involve various methods to ensure that the receivables reported in financial statements are accurate and reflect their true value. Here are a few procedures to consider:

1. Review of Subsequent Collections: Analyze cash receipts after the balance sheet date. A significant collection of receivables shortly after the reporting period can indicate the realizability of those receivables.

2. Aging Analysis: Perform an aging analysis of receivables. This helps to categorize receivables based on how long they have been outstanding. A higher proportion of older receivables may indicate potential collectibility issues.

3. Assessment of Allowance for Doubtful Accounts: Evaluate the adequacy of the allowance for doubtful accounts. This involves assessing historical collection rates, current economic conditions, and specific account issues.

4. Review Customer Payment Histories: Examine individual customer payment histories to identify trends in payments. Delinquencies or disputes may indicate that certain receivables should be written down.

5. Test of Transactions: Select a sample of transactions related to receivables to ensure that they are recorded at their net realizable value, factoring in discounts, returns, and allowances.

6. Management Representations: Obtain written representations from management regarding the valuation of receivables, including their policies on write-offs, and assess the reasonableness of these policies.

7. Comparative Analysis: Look at industry benchmarks and compare with competitors to assess whether the receivables balances are reasonable in relation to sales trends and industry practices.

8. Review of Contractual Terms: Assess the terms of credit sales, including payment terms and conditions that may affect the timing and amount of collections.

Each of these procedures contributes to a comprehensive understanding of the valuation of receivables beyond just circularization, helping ensure the accuracy of financial reporting.