When an auditor does not confirm material accounts receivable, but is satisfied by the application of alternative auditing procedures, she normally should:
The correct answer and explanation is:
Correct Answer:
Document the alternative procedures and the results obtained.
Explanation:
In auditing, the confirmation of material accounts receivable is typically considered an important audit procedure. However, there are situations where the auditor may not obtain confirmation from third parties, such as customers, due to practical reasons like lack of response or other difficulties. When this happens, the auditor is allowed to apply alternative procedures to gather sufficient and appropriate audit evidence. These alternative procedures might include inspecting shipping documents, reviewing subsequent cash receipts, or examining other records that support the existence and accuracy of accounts receivable.
Despite the lack of confirmation, the auditor must ensure that the evidence obtained through these alternative procedures is sufficient to form a basis for the audit opinion. The auditor should then document the procedures used, the evidence obtained, and the results of these procedures to show that they have gathered enough audit evidence to satisfy the audit requirements.
Documentation is crucial in this case because it provides a clear record of the auditor’s judgment and the audit approach used. It also helps ensure transparency and accountability, allowing the audit team and future reviewers to understand why alternative procedures were applied instead of traditional confirmation. This documentation can also be useful if the auditor’s findings are questioned or if further actions are required in future audits.
In conclusion, when an auditor does not confirm material accounts receivable, it is critical that they apply alternative procedures that are appropriate for the specific audit situation. The auditor must thoroughly document these procedures and their outcomes to ensure that a reliable audit opinion is formed based on adequate evidence.