Is it possible for Chan and Partners to use debtor confirmations only as audit evidence?
ASA 230 requires that the auditor prepares documentation of the audit on a timely basis that provides a sufficient appropriate record of the basis for the auditor’s report and evidence that the audit was planned and performed in accordance with ASAs and applicable legal and regulatory requirements.
Paragraphs 8-11of ASA 230 requires specific documentation of the procedures performed in relation to gathering evidence (in this case the bad debt). The auditor would document the analysis of the ageing of the accounts receivable balance. For example, which accounts receivable balances were included in the analysis, and the date the balances of accounts receivable were extracted; who conducted the analysis, and on which date; and who reviewed the analysis, and on which date, including the items reviewed and the conclusions drawn.
It is not likely that using only debtor confirmations in this case would provide sufficient basis for the auditor’s report. The accounts receivable balance is material, and there is evidence that many smaller debtors balances are overdue. Performing debtors confirmations would not provide sufficient evidence of the valuation and allocation assertion for debtors. It would necessary to conduct further procedures for the valuation and allocation assertion. In particular, it would be necessary to discuss with management their approach to recognising doubtful debts. The auditor would need to consider the assumptions, data, and methods used by management and consider their reasonableness, as well as the reasonableness of the adjustment to the accounts. In addition, the large outstanding balances from 5 practitioners would have to be considered specifically with respect to their collectability. Additional procedures for all debtor balances would include analysis of subsequent receipts and further invoices to these debtors.