Question

What is meant by alternative procedures in the confirmation of accounts receivable? As an auditor, which alternative procedures would you use? Explain and provide an example from both service and manufacturing companies.

Answer 1

Elective strategies in the affirmation of accounts receivable can be defined as those steps taken by the auditor when he isn't fulfilled about the result of the strategies connected by him beforehand. Alternative procedures that can be used are direct confirmations from the client and performing substantive procedures to ascertain any material misstatement at the assertion level.

If there should arise an occurrence of Manufacturing Companies the auditor can carry out the procedure to obtain negative or positive confirmations from the client. Example: Say a company has sold some goods manufactured to Mr. B. The auditor can request Mr. B's confirmation to the balances receivable.

If there should be an occurrence of Service Companies the reviewer can complete substantive techniques to guarantee that all the transactions are recorded correctly and are genuine. Example: Say a company has provided a few services during the month. The auditor can verify the bills and the system to ensure completeness and accuracy of the same.