ACCA Audit and Assurance (F8) Practice Exam

Which audit procedure is primarily used to verify the "Existence" of receivables?

1. Review allowance for uncollectable accounts

2. Perform alternative procedures for non-replies

3. Perform receivable confirmations

4. Compare receivables turnover

The correct answer is: Perform receivable confirmations

Performing receivable confirmations is a key procedure used to verify the "Existence" of receivables. This audit procedure involves directly contacting customers or clients to confirm that the amounts recorded in the company's accounts receivable are indeed owed by them. By obtaining confirmations from external parties, the auditor can gather evidence to support that the receivables listed in the financial statements do exist and are not overstated or fictitious. This approach is particularly effective because it provides reliable, independent verification from third parties. When customers respond affirmatively to these confirmations, it serves as strong evidence that the amounts claimed as receivables are valid and collectible. In contrast, reviewing the allowance for uncollectable accounts focuses more on assessing the adequacy of reserves for potential write-offs, which does not directly confirm the existence of the receivables themselves. Performing alternative procedures for non-replies may help in gathering evidence but does not specifically address the existence. Lastly, comparing receivables turnover is an analytical procedure that may indicate potential issues with receivables but does not provide direct confirmation of their existence.