Accounting and Control of Doubtful Debts Reserves

Doubtful receivables have a negative effect on the financial conditions of any entity. The goal of this research is to assess the results of implementation of the accounting technique in doubtful debt allowances in Russia and to suggest ways of development of control actions for this accounting segment. In the course of the research, the author applied of the following methods: observation and analysis; and accounting method elements (documentation, inventory, accounts and double record, and balance generalization). The author studied the practice of financial and tax accounting of doubtful debt and its allowances as well as the results of external audit in 45 Russian organizations in various regions. Among them, there were accounting entities of various activity fields and sizes. The research shows that all small enterprises use the right not to create doubtful debt allowances in financial accounting. They apply special tax regimes, and therefore they do not create allowances in tax accounting. The author reveals 7 organizations in which allowances on doubtful debts were not charged, which led to misstatements in their financial reporting (they received audit opinions with clauses). The author proposes preventing similar violations through using self-audit of accounts receivable. Based on these recommendations, the author has developed a checklist which includes an approximate questionnaire and a list of control and analytical procedures, the main ones being the inventory of accounts receivable and the assessment of possible credit losses for calculation of doubtful debt reserves. The author’s recommendations can help to control reliable reflection of data on receivables in accounting records of entities, and to monitor competence of accountants.