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Substantive procedure

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AA Exams › Substantive procedure

  • This topic has 1 reply, 2 voices, and was last updated 2 years ago by Kim Smith.
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  • May 8, 2023 at 10:55 am #684054
    geniuz999
    Participant
    • Topics: 21
    • Replies: 43
    • ☆☆

    Can an auditor make a telephone call to receivables to confirm the Balance ? and will it be considered a substantive procedure ?

    And in reviewing aged listings of receivables, can an auditor make a telephone call to receivable who is considered older debt on the Aged listings to confirm the risk of non-payment of these older debt hence the need for provision of Bad debt

    May 9, 2023 at 11:06 am #684101
    Kim Smith
    Keymaster
    • Topics: 135
    • Replies: 8325
    • ☆☆☆☆☆

    External confirmation of trade receivables is primarily a test of existence – see page 87 of the notes. Non-replies must be followed up with alternative procedures to confirm existence – if after sending a second request there is still not reply, the auditor may indeed (with client’s permission) call to speak to an appropriate person (e.g. financial accountant) employed by a customer.

    However, it’s not the auditor’s place to be discussing with an audit client’s customers whether, when or how they will settle their debts – that is a management responsibility.

    If it’s months after the reporting date and old debts have not been settled, and management has not made an allowance for non-recoverability (“credit losses”), it is for management to justify and provide evidence to the auditor why an allowance is not needed.

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