Alternative Procedures for Unanswered Receivable Confirmations: What Works and What Does Not

Not every customer replies. A typical positive confirmation response rate leaves some part of the sample unanswered, and each unanswered item must be resolved with other evidence. The standard requires alternative procedures for each non-response. This post covers the procedures, how to apply them and where they fail. The general process is in audit confirmations, and the log is in confirmation exceptions.

First, follow up

Before alternative procedures, make the follow-up effort and document it:

• A second request, mailed or sent by the same controlled channel as the first.
• A phone call using contact information the auditor verified, not the client's.
• For an undelivered request, determine why: wrong address, moved, closed, nonexistent. An undelivered request is a non-response and a potential red flag.

Record the dates. A non-response with no follow-up is a procedure not done.

The procedures for receivables

Common alternative procedures for receivables are subsequent cash receipts, shipping documents and sales documentation near year end, and each tests a different thing.

Combine them: cash receipt matched to the invoice, shipping document dated before year end, and the customer order or contract.

Applying subsequent cash receipts

1. Obtain the cash receipts journal and bank statements from year end through the audit date.
2. For each non-responding balance, find the receipts after year end and match each to specific invoices, using the remittance advice.
3. Agree the receipt to the bank deposit and the bank statement. Confirm that the payer is the customer and not a related party or a third party funded by the client.
4. Verify the receipt relates to a year-end invoice, not to a later invoice.
5. Document the portion of the balance paid and the portion still open.

Cautions: a receipt recorded after year end but that the client applied to the old invoice could actually pay a new invoice. A receipt from a different bank account or entity needs explanation. A lapping scheme, where later customer payments are applied to earlier balances to hide theft, makes cash receipts evidence unreliable. When risk of misappropriation is elevated, match receipts to remittance advices and bank deposits by amount and date.

Applying shipping documents

1. Pull the invoice, the sales order, the bill of lading or delivery receipt and the proof of delivery.
2. Check that the shipping date is before year end and the terms transfer control to the customer at that point.
3. Check that the customer name and address agree to the customer master.
4. Check the quantity and price against the order and the price list.

Shipping documents created by the client are internal evidence. A carrier's proof of delivery signed by the customer is stronger, since it comes from outside the client. See cutoff testing.

Applying the sales-near-year-end procedure

Examine sales recorded in the last weeks before year end for the customer: the order, the contract, the invoice, the delivery and any credit memos issued after year end. Large credit memos shortly after year end can show that revenue was recorded early.

Worked example

A confirmation sample of 60 customers has six non-responses totalling $410,000:

Results: three items cleared, one cutoff misstatement ($74,000), one possible fictitious sale ($61,000) and one related party matter ($38,000). The Dunn Tools finding goes to the manager and the partner at once because it may involve fraud. The Cedar Retail misstatement joins the adjusting entry log. The auditor extends the sales cutoff test and the related party procedures. The sample failed to clear $173,000 of the $410,000 non-responses.

When alternative procedures are not enough

A response to a positive confirmation is sometimes necessary, because the information is available only outside the entity, or because fraud risk factors such as management override or collusion prevent reliance on the client's records. If the auditor decided that a reply is necessary and does not get one, alternative procedures will not do, and the auditor determines the effect on the audit and the opinion. If the auditor concluded a reply was required and none came, the auditor determines the effect on the audit and the opinion under AU-C 705.

Non-responses as risk indicators

A response rate well below expectation can point to a fraud risk factor. Compare the response rate to prior years and across customer groups. A cluster of non-responses from one salesperson's accounts, from one region or from customers with new accounts is a lead.

What the file shows

• Follow-up dates and methods.
• The alternative procedures chosen and why.
• Evidence for each item, referenced.
• Items not cleared and what was done.
• Effect on the risk assessment, the allowance and the misstatement schedule.
• Conclusion on the sample.

CORAA prepares ready-to-review audit files for US CPA firms; the firm keeps the client, the review and the signature. See /us.

Sources

• AICPA, AU-C Section 505, External Confirmations; AU-C Section 705, Modifications to the Opinion in the Independent Auditor's Report
• AICPA, AU-C Section 240, Consideration of Fraud in a Financial Statement Audit
• U.S. Government Accountability Office, Financial Audit Manual, Volume 1 (GAO-26-108577), June 2026, section 470 (substantive procedures overview, including confirmations): gao.gov
• Australian Auditing and Assurance Standards Board, ASA 505 External Confirmations (ISA-based text on non-responses and when a response is necessary): standards.auasb.gov.au
• Study guide on AU-C 505 (alternative procedures for non-responding receivables): open-exam-prep.com

AU-C references are to AICPA Professional Standards, paraphrased here; read the standard itself before relying on a requirement. This page is guidance, not professional advice. Report an error