Question

If the auditor decides not to confirm accounts receivable that are material, the auditor should?

1) always use alternative procedures to audit the accounts receivable.
2) include copies of customer statements in the audit files.
3) document the reasons for such a decision in the audit files.
4) include copies of customer sales invoices in the audit files.

Answer 1

If an auditor chooses not to confirm material accounts receivable, they are to use alternative procedures and document the reasons for not confirming in the audit files.

Step-by-step explanation:

If an auditor decides not to confirm accounts receivable that are material, the professional standards suggest that the auditor should:

1. Always use alternative procedures to audit the accounts receivable.
2. Document the reasons for such a decision in the audit files.

While the auditor may decide not to use confirmation as a means to verify accounts receivable, it is crucial that they employ alternative procedures to attain sufficient audit evidence regarding their existence and valuation. These alternative procedures may include examining subsequent cash receipts, shipping documents, or reviewing customer correspondence. Moreover, the auditors must maintain comprehensive documentation within the audit files to support their decision-making process. This documentation should include detailed explanations of the methods used and the rationale behind the decision not to send confirmations.

Additionally, while auditors may include copies of customer statements or sales invoices as part of their audit evidence, these actions alone do not replace the need for confirming accounts receivable or performing suitable alternative procedures.