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ACCA Strategic Professional · Advanced Audit and Assurance (International) · Evidence and testing considerations

Palmera Co's auditor tests trade receivables using external confirmations. For a material balance, the customer does not reply to two requests. The auditor performs alternative procedures, including examining cash received after the year end and the related despatch notes and invoices. Which statement is most accurate?

The auditor may conclude that sufficient appropriate evidence exists if the alternative procedures, such as post year-end cash receipts and despatch and invoice documentation, adequately address existence. Non-response alone does not require modification, but management assurance alone would not be enough.

  1. AThe auditor must modify the opinion because confirmation was not obtained
  2. BThe alternative procedures may provide sufficient appropriate evidence on existence if they address the assertion adequatelyCorrect
  3. CThe auditor should rely on management's assurance that the balance is valid
  4. DThe auditor should treat the balance as an error and propose a full write-off

Explanation

Non-response does not by itself require modification. Where confirmation is not received, the auditor performs alternative procedures such as subsequent receipts and despatch documentation. If these give sufficient appropriate evidence, no modification arises. Management assurance alone would be inadequate, and a write-off is unjustified without evidence of misstatement.

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