Receivables: if unusual items are found, what should the auditor do?

• A. Investigate unusual items
• B. Ignore if small
• C. Write off immediately
• D. Adjust revenue

Answer: (A)

Unusual items in receivables demand thorough investigation to obtain sufficient appropriate evidence about why they exist, whether they reflect errors, misstatements, or possible fraudulent activity, and what they mean for collectability and revenue recognition. The auditor would seek explanations from management and inspect supporting documents such as sales invoices, shipping records, credit notes, and contract terms, then perform independent procedures like sending confirmations to customers and reviewing subsequent cash receipts to assess validity and collectability. They’d also consider cut-off issues and any related party involvement, and decide whether adjustments to the allowance for doubtful debts or revenue records are warranted. If the investigation shows the items are genuine, no unwarranted adjustment is needed; if it reveals misstatements or uncollectibility, the appropriate adjustments should be made and disclosures considered.