How do an Auditor verify Book Debts | Audit Procedure

Guidelines for Verification of Book debts by Auditor

Verification of Book Debts - Audit Procedure
Verification of Book Debts – Audit Procedure

While verifying book debts, an auditor should follow the following procedure.

1. The auditor should obtain the list of debtors duly certified by the responsible official and scrutinize its accuracy.

2. He should obtain the confirmation letters of the statement of accounts directly from debtors and the same should be verified to check the actual existence of debtors. He should pay special attention to those balances for which confirmations are not available.

3. The sales ledger balance should be checked with the Debtor’s Ledger, Sales Book, Sales Returns Book, Cash Book, etc.

4. He should see that the book debt balances do not include the amounts due in respect of goods out on sale or return basis.

5. He should see that the book debts shown in the Balance Sheets are recoverable.

6. He should obtain a duly certified statement classifying between good debts, secured debts, unsecured debts, current debts, bad and doubtful debts, and debts outstanding for a period exceeding six months.

7. He should see that adequate provision has been made for bad and doubtful debts.

8. In the case of company accounts the auditor should see that its debtors are classified as prescribed by the Companies Act of 1956 and shown in the Balance Sheet in the same order.

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