How do you run an external confirmation process for receivables, and what if customers do not reply?
What the interviewer wants to hear
- Auditor controls selection, sending and receipt of requests
- Chooses positive or negative confirmations based on risk
- Investigates exceptions and reconciles differences
- Performs alternative procedures for non-replies
- Considers management refusal to allow confirmations
Model answer
I select customers from the receivables listing, focusing on large, old and unusual balances, plus a sample of the rest. The client signs the request, but the audit team prepares and sends it, and replies come directly to us, often by email from verified addresses or through a confirmation platform, so management cannot intercept them. Usually I use positive confirmations, which ask the customer to reply in every case. For replies with differences, I reconcile them, since many are timing items like payments in transit, and treat unexplained ones as possible misstatements. For non-replies I send a reminder, and if there is still no answer, I perform alternative procedures: checking receipts after year end and vouching invoices to orders and dispatch documents. If management refuses to let me confirm a customer, I ask why, consider fraud risk and may need to modify my opinion if I cannot get alternative evidence, as SA 505 explains.
Can you answer it under time pressure?
Take a timed medium round and get scored on every answer.
More medium Auditor questions
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- What do you communicate to the audit committee during and at the end of an audit?