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q: which of the following audit procs provides evidence of valuation and existence of receivables at the year end?
1. external confirmation from customer of the amount outstanding
2. inspection of post year end bank statement to identofy payments by customers of balances outstanding at the year endin my infinite wisdom, i chose 1 because it was an external confirmation and the fact that i knew the balance.
but the answer is 2.
can u please explain y?
External confirmation helps with existence and ownership.
However, imagine you owed a company money and knew you were going to find it difficult to pay. Then you receive a letter asking you to confirm the amount owed. If you didn’t reply you might raise suspicions. It might be a more devious plan to reply, confirming the balance so that your supplier suspected nothing, however, you really know that you can’t pay.
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