The risks associated with receivables and payables include a high
dependence on the health of the US economy as well as a concern for
changes in consumer confidence. a The dependence is especially
significant for the states of California, Texas, Florida, Minnesota, and
Illinois since there is a significant portion of total sales derived from
those five states. The decline in economic conditions as well as
consumer confidence “could negatively affect business in many ways,
including slowing sales growth, reducing overall sales, and reducing
gross margins” (U.S. SEC, 2019). Having less sales and gross margins
results in less funds to handle payables and liabilities, and the decline
in the economy would result in customers spending less which results
in fewer revenues for Target and other companies.
Another risk is the company’s potential “failure to comply with
federal, state, local, and international laws” which could “increase our
costs, reduce our margins, and lower our sales” (U.S. SEC, 2019).
Having increased expenses directly translates to increased payables. a
As an auditor, some specific tests based on these risks would be to
create and compare average customer incomes with previous years,
compare “comparative summaries of all significant revenue accounts”
with previous years, as well as “compute average profit margins by
sales categories and compare with previous years” (Hall, 2022).
Hall, C. (2022, March 23).
Auditing Receivables and Revenues: A
Guide
. CPA Hall Talk. Retrieved August 4, 2022, from
https://cpahalltalk.com/auditing-receivables-revenues/
U.S. SEC. (2019, February).
Target Corporation Form 10-K
.
https://www.sec.gov/Archives/edgar/data/27419/0000027419190
00006/tgt-
20190202x10k.htm#sA62F5029548655009B6504DA0274EEA9
Whittington, R., & Pany, K. (2021).
Principles of Auditing & Other
Assurance Services
(22nd ed.). McGraw-Hill Education.
