28/06/2026
HOW TO AUDIT ACCOUNTS RECEIVABLE
(A Practical Guide Every Auditor Should Know)
Revenue is only valuable when it is collected.
An organisation may report impressive sales, but if customers are not paying, cash flow suffers and bad debts increase.
That's why auditing Accounts Receivable is about more than checking balances. It's about assessing whether the organisation will actually collect the money it is is owed.
I. Start With the Ageing Report
Request the latest Accounts Receivable ageing schedule.
Focus on
• Current balances
• 30-day overdue accounts
• 60-day overdue accounts
• 90-day and older balances
Ask Yourself
Are overdue balances increasing over time?
II. Test Customer Balances
Select a sample of customer accounts and verify
✓ Sales invoices
✓ Delivery notes
✓ Customer statements
✓ Payment history
Red Flag
Customers disputing invoices that have already been recognised as revenue.
III. Review Credit Approval
Check whether customers were granted credit in line with company policy.
Verify
• Credit limits
• Approval records
• Credit terms
Red Flag
Customers consistently exceeding approved credit limits.
IV. Review Collections
Compare
• Amount invoiced
• Amount collected
• Outstanding balance
Identify customers with long-outstanding debts and investigate why.
V. Assess the Bad Debt Provision
Ask
• Is the provision reasonable?
• Does it reflect the likelihood of collection?
• Has management considered long-overdue balances?
Red Flag
Old debts remaining on the books with no realistic chance of recovery.
VI. Confirm Receivable Balances
Where appropriate, send confirmations directly to customers.
Differences between customer confirmations and company records can reveal errors or irregularities.
VII. Think Beyond the Numbers
A good Accounts Receivable audit doesn't stop at reconciling balances.
Ask
"Why are customers not paying?"
Sometimes the issue is not weak collections. It may be poor customer service, billing errors, product quality issues, or ineffective credit management.
A growing Accounts Receivable balance is not always a sign of business growth.
Sometimes, it is an early warning sign of future losses.
Which Accounts Receivable risk have you encountered most often?
A. Long-outstanding debts
B. Weak credit approvals
C. Disputed customer balances
D. Inadequate bad debt provisions
👇 Share your experience and how you addressed it.
