Ministry of higher education, science and innovation tashkent state university of economics

Accounting and audit of current assets

Accounting and audit of current assets play a vital role in financial reporting and analysis. Current assets, such as cash, accounts receivable, inventory, and prepaid expenses, are the resources that can be converted into cash or consumed within a short period. This article explores the principles and best practices of accounting and audit of current assets. By adhering to these guidelines, organizations can ensure accurate financial reporting, effective internal controls, and compliance with accounting standards.
I. Accounting for Current Assets:
Accurate accounting for current assets is crucial for reflecting their value, liquidity, and impact on financial statements. Key principles and practices in this area include:
Cash: Cash is the most liquid current asset and is usually recorded at its face value. Cash equivalents, such as highly liquid short-term investments, are also included in this category.
Accounts Receivable: Accounts receivable represents amounts owed by customers for goods sold or services rendered on credit. It is recorded at the invoiced amount, net of any allowances for doubtful accounts or discounts.
Inventory: Inventory includes raw materials, work-in-progress, and finished goods held for sale or use in the production process. It is valued at the lower of cost or net realizable value using methods such as first-in, first-out (FIFO), last-in, first-out (LIFO), or weighted average cost.
Prepaid Expenses: Prepaid expenses represent costs paid in advance for future benefits. They are initially recorded as assets and then expensed over the period in which the benefit is consumed.
II. Internal Control over Current Assets:
Implementing effective internal controls over current assets ensures proper safeguarding, accurate recording, and appropriate utilization of these assets. Key control activities include:
Cash Handling and Reconciliation: Establish controls to ensure accurate cash handling, such as segregation of duties, regular cash counts, and reconciliation of cash balances with bank statements.
Accounts Receivable Management: Implement procedures for credit assessment, invoicing, collection, and monitoring of accounts receivable. This includes maintaining a proper credit policy, conducting regular aging analysis, and pursuing timely collection of outstanding amounts.
Inventory Control: Implement controls to safeguard inventory, such as secure storage, restricted access, and periodic physical inventory counts. Ensure proper documentation of inventory movements, including receipts, issues, and adjustments.
Prepaid Expense Management: Establish controls to monitor and track prepaid expenses. This includes maintaining a schedule of prepaid expenses, reviewing the reasonableness of prepaid balances, and ensuring proper recognition of expenses when incurred.
Segregation of Duties: Ensure that responsibilities related to current assets, such as cash handling, accounts receivable, inventory management, and prepaid expenses, are appropriately segregated among different individuals to prevent fraud or errors.
III. Audit of Current Assets:
The audit of current assets ensures the accuracy and completeness of financial reporting, the reliability of internal controls, and compliance with accounting standards. Key considerations for auditors include:
Risk Assessment: Perform a risk assessment to identify significant risks related to current assets, such as misappropriation of cash, overstatement of accounts receivable, valuation issues with inventory, or inadequate controls over prepaid expenses. This assessment guides the audit planning and testing procedures.
Testing of Controls: Evaluate the design and effectiveness of internal controls over current assets. This may involve testing controls related to cash handling, revenue recognition, credit management, inventory valuation, and prepaid expense recognition.
Substantive Testing: Conduct substantive testing procedures to verify the accuracy and completeness of current asset balances and transactions. This may include testing the existence and valuation of cash, confirming accounts receivable balances with customers, performing inventory observations and counts, and reviewing prepaid expense schedules.
Compliance with Accounting Standards: Assess the organization's compliance with applicable accounting standards for current assets. This includes ensuring proper recognition, measurement, presentation, and disclosure of current assets in accordance with the relevant accounting framework.
Reporting and Communication: Communicate audit findings, including any identified deficiencies in internal controls or material misstatements, to management and the audit committee. Provide recommendations for improving internal controls and financial reporting processes related to current assets.
Accurate accounting and audit of current assets are crucial for organizations to provide transparent financial information, ensure compliance with accounting standards, and maintain effective internal controls. By adhering to the principles and best practices discussed in this article, organizations can properly account for current assets, implement robust internal controls, and facilitate a smooth and reliable audit process. Proactive management of current assets enhances financial reporting quality, supports informed decision-making, and contributes to the overall financial health and stability of the organization.

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