It was a cold morning. The kind of Cape Town cold that clings to you, a damp chill that seeped through Leo's new, ill-fitting suit. He clutched his briefcase, his knuckles white, and stared up at the sheer glass-and-steel face of the Deloitte building.
He was an intern. A nobody. And he was terrified.
The audit floor was a hushed roar of keyboards and quiet, urgent conversations. Leo was assigned to a senior manager named Sarah, a woman whose sharp gaze seemed to peel back layers of incompetence.
Sarah: "You're on the Apex Innovations audit. We're signing off on Friday, and something stinks."
She led him to a small, glass-walled room. The table was covered in spreadsheets.
In this interactive case study, you will learn:
Sarah: "Apex is a tech company. They're trying to secure a R200 million loan from a major bank to avoid bankruptcy. The bank will only approve it if our audit report is clean."
"Our problem is their Trade Receivables. The number is huge. Way too high for a company their size."
Registration: 2018/123456/07
15 Loop Street, Cape Town, 8001
Year-End: 31 December 2024
| Account | Amount (ZAR) | Status |
|---|---|---|
| Total Assets | R 185,000,000 | - |
| Trade Receivables | R 142,000,000 | ⚠️ 77% of Total Assets |
| Cash & Equivalents | R 8,500,000 | - |
| Property & Equipment | R 34,500,000 | - |
| Loan Required | R 200,000,000 | Critical |
⚠️ Red Flag: Trade Receivables represent 77% of total assets. This is unusually high for a tech company and raises questions about the Existence and Valuation of these assets.
Leo nodded, trying to look intelligent. "So... we don't trust their internal controls?"
Sarah: "Their controls look fine. We did our Tests of Controls[ISA 330.8], and they all passed."
Sarah: "I need you to perform a substantive procedure to test the Trade Receivables."
Leo's blood ran colder than the morning air. A real procedure. He swallowed, his mind racing back to his UWC lecture slides.
"Which... which assertion, ma'am?"
Sarah: "Good. Start with Existence[ISA 315.A127]. Do these debts actually exist? If they don't, Apex is insolvent."
"The bank gives them a loan based on phantom assets, the company collapses anyway, the bank loses R200 million, and they sue us for negligence. You, me, and the partner who signs this will be on the street. Understood?"
When auditing Trade Receivables, we test these assertions:
The Stakes:
He took the file, a detailed Debtors Age Analysis[Working Paper 3.1.1], and went to his small intern desk.
Debtors Age Analysis
As at 31 December 2024
| Customer Name | Current | 30 Days | 60+ Days | Total |
|---|---|---|---|---|
| Quantum-Tech (Pty) Ltd | - | - | R 90,000,000 | R 90,000,000 |
| DataCore Solutions | R 12,500,000 | R 3,200,000 | R 8,300,000 | R 24,000,000 |
| TechVision Industries | R 8,700,000 | R 2,100,000 | R 1,200,000 | R 12,000,000 |
| Innovate SA | R 6,400,000 | R 1,800,000 | R 3,800,000 | R 12,000,000 |
| Other Customers (15 accounts) | R 2,500,000 | R 800,000 | R 700,000 | R 4,000,000 |
| TOTAL TRADE RECEIVABLES | R 30,100,000 | R 7,900,000 | R 104,000,000 | R 142,000,000 |
🚨 Critical Discovery: A single customer, Quantum-Tech, owes R90 million - that's 63% of all receivables! And it's been outstanding for over 60 days.
Leo stared at the screen. R90 million. From one customer. Overdue by 60+ days.
He pulled up the invoice. It was dated eight months ago. Software licensing fees. He saw the signed purchase order.
Everything looked... fine.
Leo wrote in his working paper:
Prepared by: Leo (Intern)
Date: 14 January 2025
Procedure: Check that the Quantum-Tech invoice is valid.
Result: The invoice looks correct.
He walked over to Sarah's desk.
Sarah looked up. "Done already?"
She read his note. Her face didn't change, but something in the air did.
Sarah: "What did you 'check,' Leo?"
He blinked. "The... the invoice. It's signed. The amount matches. It—"
Sarah: "'Check.' 'Looks correct.' These are not audit procedures, Leo. These are vague, meaningless words that will get you fired and me sued."
NEVER use these vague terms in audit working papers:
Problem: These terms don't describe the specific ACTION taken, EVIDENCE examined, or ASSERTION tested.
Sarah: "Every procedure you perform must answer three questions: HOW did you test it? WHAT evidence did you examine? WHY - which assertion were you testing?"
Sarah: "Go back. Think. How do you prove a debt exists?"
He returned to his desk, his career flashing before his eyes. He pulled up his old lecture notes on his laptop. Trade Receivables... Existence...
Of course. The proof wasn't inside Apex. It was outside.
💡 Key Insight: External evidence is generally more reliable than internal evidence because it comes from independent third parties and is less susceptible to management manipulation.
Scenario: You need to test the Existence of the R90 million receivable from Quantum-Tech.
Write a proper audit procedure following Sarah's HOW - WHAT - WHY framework.
Sarah nodded. "Good. Do it. Now."
They sent the confirmation request. The wait was agonizing. Two days passed. The tension on the floor was so thick Leo felt he could barely breathe.
On the third day, the email landed.
From: legal@quantumtech.co.za
Date: 11 January 2025
To whom it may concern:
We are in receipt of your confirmation request dated 8 January 2025.
We do NOT acknowledge this debt.
The project was terminated by mutual agreement on 15 November 2024. A credit note (CN-2024-1156) was issued by Apex Innovations management six weeks ago.
Amount owed to Apex Innovations: R 0.00
Please see the attached credit note for your records.
Quantum-Tech Legal Department
"They hid it. Management overrode the system and didn't process the credit note, leaving a fake asset on the books to secure the loan."
It was fraud.
The next 48 hours were a blur. Sarah called in the partner. The partner called in forensics. The CFO of Apex was suspended.
Leo sat through interview after interview, explaining his procedure. Every time, they asked: "How did you find it?"
And every time, he answered: "I sent an external confirmation request to test the existence assertion."
The audit opinion? Adverse. The loan? Denied. The company? Liquidated within months.
But the bank didn't lose R200 million. And Deloitte didn't get sued.
Because Leo, a terrified intern on his first real assignment, did his job properly.
This case demonstrates why substantive procedures are MANDATORY:
Two weeks later, Sarah called Leo into her office.
Sarah: "You did good, Leo. You didn't just 'check.' You inspected correspondence. You obtained external confirmation. You recalculated the allowance."
"You saved this firm from a catastrophic lawsuit."
Leo looked up, the weight of the week finally hitting him. "I was just doing what the slides said."
Sarah smiled, a genuine, tired smile. "It's different when it's real, isn't it?"
"A substantive procedure isn't just about ticking a box.
It's the last line of defense.
It's how we find the truth."
As Leo walked out into the now-sunny afternoon, the chill was gone. He wasn't just an intern anymore.
He was an auditor.
When auditing Trade Receivables, always:
You've completed the interactive audit case study.
You now understand how to perform substantive procedures
and the critical role they play in detecting fraud.