A debtors’ circularization should be undertaken to obtain direct confirmation from the customer that the balance is correct.
The auditor should:
|Obtain the client’s permission If this is not forthcoming, the auditor will have to decide if alternative procedure are available to overcome this e.g. extended testing of customers’ remittance advice
Decide the sample required. This will depend on:
Select the sample. This should include NIL balances
Control the posting of the letters
Enclose a stamped addressed envelope to ensure that all replies are received by himself
Send reminders if any replies are not received
Investigate thoroughly any balances which are not agreed by the customers. Full explanation should be obtained and the auditor may have to perform additional testing to satisfy himself.
Where no reply is received, the auditor should perform additional testing regarding the balance. This testing will include:
Prepare a final summary of the results of the circularization and draw the final conclusion