Question

It is sometimes impossible for the auditors to use normal accounts receivable confirmation procedures. In such situations, the best alternative procedure the auditors might resort to would be?

1) Examining subsequent receipts of year-end accounts receivable.
2) Reviewing accounts receivable aging schedules prepared at the balance sheet date and at a subsequent date.
3) Requesting that management increase the allowance for uncollectible accounts by an amount equal to some percentage of the balance in those accounts that cannot be confirmed.
4) Applying analytical procedures to accounts receivable and sales on a year-to-year basis.

Answer 1

The best alternative procedure for auditors when accounts receivable confirmation isn't possible is to examine subsequent receipts, providing evidence of existence and collectability of the receivables.

Step-by-step explanation:

When normal accounts receivable confirmation procedures can't be used, auditors have several alternative procedures. Among them, the best alternative could be examining subsequent receipts of year-end accounts receivable. This involves verifying payments received after the balance sheet date that were applied against accounts receivable balances outstanding at year-end. It provides evidence that the receivables existed and were collectible. Another alternative is reviewing accounts receivable aging schedules prepared at the balance sheet date and at a subsequent date. However, requesting an increase in the allowance for uncollectible accounts is not an audit procedure, but an accounting estimate adjustment that management should make according to their assessment of the collectability of accounts. Finally, applying analytical procedures to accounts receivable and sales can be useful to understand patterns and trends, but they might not provide the concrete evidence of the existence and collectability of receivables like confirmation or subsequent receipts do.