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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
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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