Question

When should auditors not perform alternative procedures in testing the accounts receivable balance?

1) when customers do not return positive confirmation requests
2) when customers do not return negative confirmation requests
3) when confirmations are deemed to be ineffective as an audit procedure
4) when confirmations are too costly to use

Answer 1

Auditors should not perform alternative procedures when customers do not return confirmation requests and when confirmations are ineffective or deemed too costly to use.

Step-by-step explanation:

Auditors should not perform alternative procedures in testing the accounts receivable balance in the following situations:

1. When customers do not return positive confirmation requests: Positive confirmation requests are sent to customers asking them to confirm the accuracy of their account balance. If customers do not respond, auditors cannot rely on this procedure.
2. When customers do not return negative confirmation requests: Negative confirmation requests are sent to customers asking them to confirm if any discrepancies exist in their account balance. If customers do not respond, auditors assume no discrepancies exist.
3. When confirmations are deemed to be ineffective as an audit procedure: If auditors have reason to believe that confirmations will not provide reliable evidence about the accounts receivable balance, alternative procedures may be necessary.