Receivables are amounts due to an entity, that arise as a result of past events that occurred as part of the core business operations of such entity, that have a specified payment date. The balance of short-term receivables as at the balance sheet date, includes receivables which, after payment, will become cash in hand. Those receivables that are challenged in part or in whole are called claims. Every year, companies are required to provide written confirmation of the balance of receivables with the contractor in order to prevent the occurrence of disputes. In the case of any differences, the balances of individual items as compared to the given invoices are shown on the confirmation.
The valuation of receivables on the balance sheet is presented in the amount of the due payment, while maintaining the principle of prudence. The nominal value is reduced by revaluation write-downs which gives the realistically assessed payment amount.
During the annual audit of the financial statements, the statutory auditor verifies the balance of receivables and revaluation write downs in several different ways. The main way that the correctness of the balance is checked is through the confirmations received from contractors, but sometimes the accounting entries and payments are reviewed.
According to audit practices, write-downs for receivables should be made when:
The statutory auditor, at his own discretion, may agree to the lack of a write-down provided that:
In the event a given receivable is treated as non-recoverable a write-off should be booked with the settlement. If the receivable is then recovered, the booking is reversed by an entry under other operating income.return