What are Alternative Procedures?

Alternative Procedures

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Alternative Procedures

Alternative procedures, in the context of accounting and auditing, refer to different methods or approaches that an auditor can use to obtain sufficient appropriate audit evidence when the primary or preferred auditing procedures cannot be applied or are not effective. These procedures are adopted in situations where the initial auditing procedures fail to provide conclusive evidence, or there are limitations or restrictions on the auditor’s ability to perform certain procedures.

Example of Alternative Procedures

Let’s consider a situation where an auditor is unable to obtain a direct confirmation from a customer about their outstanding accounts receivable balance with the client company.

Example: Company ABC is being audited, and the auditor wants to confirm the outstanding balance of a significant customer, Customer XYZ. The auditor sends a confirmation request to Customer XYZ, but they do not receive a response. In this case, the auditor can use alternative procedures to obtain audit evidence regarding the outstanding balance.

Alternative procedures that the auditor could perform include:

  • Examining subsequent cash receipts: The auditor can review cash receipts from Customer XYZ after the year-end to verify if the outstanding balance has been settled. This helps the auditor confirm the existence and valuation of the accounts receivable balance at the year-end.
  • Reviewing correspondence files: The auditor can inspect any email correspondence, letters, or other communication between Company ABC and Customer XYZ to gather evidence about the outstanding balance or any disputes related to the account.
  • Inspecting supporting documents: The auditor can review other relevant documents, such as sales invoices, shipping documents, and contracts, to corroborate the existence and accuracy of the accounts receivable balance.

By performing these alternative procedures, the auditor can obtain sufficient appropriate audit evidence regarding the accounts receivable balance with Customer XYZ, even though they were unable to receive a direct confirmation.

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