Editorial

Are Your Trade Receivables Audit Ready?

Most companies subject to audits of their financial statements view it as a necessary evil. They also assume it comes with a baseline cost. Sophisticated companies, however, are always looking to lower the costs of such audits, particularly in light of regulatory changes that further complicate the audit process.

For example, according to a report by Deloitte on testing the impairment of trade receivables (for entities in trading, manufacturing and non-financial services sectors), such receivables would be considered impaired if carrying amounts exceed the recoverable amount.

That sounds reasonable. In order to test impairment, however, audit procedures, according to Deloitte, will likely include:

Obtaining a roll forward schedule of the allowance for doubtful accounts
Understanding, documenting, and evaluating the reasonableness of the methods and assumptions used by management to estimate the allowances for doubtful accounts; and if management’s methods and assumptions are reasonable
Test the accuracy and completeness of the data used by management

To provide this level of information to auditors, a company must continually re-assess its ability to collect on receivables and determine if there is sufficient evidence that a loss event has occurred, according to Deloitte.

Loss events can show evidence of trade receivables impairment. Such events could include an accident at a customer’s major factory or early signs that the customer will enter bankruptcy.

In our work with a variety of companies, The Credit Department has enhanced our ability for companies to monitor and detect even earlier signs of trade receivables impairment. Monitoring accounts receivables and updating credit terms can head off risk. Not only is this information valuable to help you make business decisions sooner on troubled accounts, it also streamlines the audit process. A more streamlined audit process is less costly over time.

Do you need assistance with better monitoring of trade receivables to be “audit ready?” Our extensive monitoring and reporting through The Credit Department’s proprietary expertise and software can improve your ability to share data efficiently with auditors and lenders.

Learn about how we can help you manage credit risk.

Source: https://www2.deloitte.com/ng/en/pages/audit/articles/financial-reporting/audit-readiness-6.html

Pam Krank has been a leader and pioneer in the Trade Receivables space since 1993, serving as President of TCD, lecturing on International Trade Credit and serving as an adjunct professor at the University of St. Thomas. Prior to TCD, Pam held positions with a multinational F-50 conglomerate for thirteen years. She is a graduate of the University of Minnesota, Credit & Financial Management.