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CA Intermediate · Auditing and Ethics · Audit of Items of Financial Statements

During the audit of Rudra Pharma Ltd, the auditor sends external confirmation requests to debtors. Several debtors do not reply even after a follow-up request. For one material debtor, no reply is received, and the auditor proposes alternative procedures. Which is the most appropriate alternative procedure?

The best alternative is to examine subsequent receipts from the debtor together with dispatch and sales documents. These give reliable external or documentary evidence of existence and rights. Silence cannot be treated as confirmation, and management representation alone is not sufficient audit evidence for a material balance.

  1. AExamine subsequent receipts from the debtor and the related dispatch documentsCorrect
  2. BAccept the management representation that the balance is correct
  3. CTreat the non-response as confirmation of the balance
  4. DWrite off the balance as doubtful in full

Explanation

For non-responses, the auditor performs alternative procedures such as examining subsequent cash receipts, shipping documents and sales documentation. Treating silence as confirmation is not acceptable evidence, and management representation alone is not sufficient. Writing off the full balance is not a procedure and has no basis.

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