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Which TWO of the following substantive procedures will provide evidence over the EXISTENCE of Eagle’s trade receivables other than the balance owing from Albatross Co?
Calculate the receivables collection period and compare with prior year
Perform a receivables circularisation
Review post year-end cash receipts from customers
Recalculate the allowance for irrecoverable receivablesAnswer is 2 and 3.
My question is that 1 is analytical procedure so it will also show existence assertion. Why 1 is not correct?Consider that the PRIMARY test for existence is external confirmation – so #2.
But if there is no response, the auditor must perform alternative procedures such as see if the customer has paid the debt – so #3, or another alternative procedure would be to look at the make up of the balance, and for goods despatched checking that the customer signed for the receipt of the goods.All of the above involved some “interaction” with the customer – thereby confirming “existence”.
Substantive analytical procedures don’t come close to this – they wouldn’t even consider individual customers.
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