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

The answer is as below:

The alternative procedure for an accounts receivables can be determined by the auditor when he is not satisfied about the procedure which was previously applied.Therefore alternative procedures are used as a direct confirmations from client and other procedures which are used to determine the material misstatement which is present in the procedure.

The following are the examples which can be cited from the manufacturing companies when the auditor carries out the procedure to obtain the confirmation from the clients.Example Suppose some goods were sold to another company so that the auditor can ask for confirmation of the balance of accounts receivables.

The following are the example in case of service industries where the auditor carries out the substantive procedures to check that the transactions are recorded correctly .Example a company have provided internet services and the auditor can verify those bills which are generated on account of services rendered so to check the completeness of the transactions.