Alternative Procedures

How it works

Five confirmations came back. Twenty-five went out. That leaves twenty non-responses sitting in the file, and the partner signs off next week. This is where alternative procedures stop being theoretical. In my experience, on about half the engagements with material trade receivables, the file arrives at review with a single subsequent-receipt tick against each non-response and nothing else. That is not evidence that the receivable existed at year end. It is evidence that a customer eventually paid something.

ISA 505.12 requires the auditor to perform alternative procedures when an external confirmation request produces no reply. The standard does not prescribe which procedures to use. It requires that the alternatives address the same financial statement assertion the original confirmation (conf) targeted.

For trade receivables, the conf typically targets existence and valuation. The most common alternative procedure is inspecting subsequent cash receipts: if the customer paid the invoice after year-end, that payment provides evidence that the receivable existed and was recoverable at the balance sheet date. Where no subsequent receipt exists, the auditor can inspect the underlying sales invoice, shipping documentation, the carrier's delivery confirmation, and the customer's purchase order to build evidence for existence from the other direction. The file should tell a story: request sent, no reply, here is how we built the evidence without the third-party statement, here is why it was enough.

For bank confirmations, alternatives are more limited. ISA 505.12 still applies, but auditors typically obtain bank statements directly and test reconciling items against independent supporting documentation. The alternative is rarely as strong as the confirmation itself, which is why ISA 505 .A20 notes that non-responses to bank confirmations may indicate a risk that warrants further investigation.

Why it matters in practice

Worked example: Ferreira Textil Lda.

Client: Portuguese textile manufacturer, FY2024, revenue EUR 28M, Portuguese GAAP reporter, 85% of revenue from export customers across Europe.

Step 1 — Send confirmations and track responses: The audit team selected 25 trade receivable balances for positive confirmation, covering EUR 3.8M of the total EUR 5.1M receivable balance. After two rounds of requests (initial and follow-up), 18 confirmations were returned agreed, 2 were returned with differences (investigated and resolved), and 5 received no response. The 5 non-responses totalled EUR 620K.

Step 2 — Perform alternative procedures on non-responses:

• Customer 1 (EUR 185K): Inspected post-year-end bank receipt dated 18 January 2025 for EUR 185K. Matched to invoice 2024-1847.
• Customer 2 (EUR 142K): No subsequent receipt by the date of audit fieldwork. Inspected the sales invoice, signed delivery note from the freight carrier, the customer's purchase order, and a post-year-end email from the customer confirming the balance. All four documents support existence of the receivable.
• Customers 3–5 (combined EUR 293K): Subsequent receipts confirmed for all amounts before the date of fieldwork. Matched to original invoices.

Conclusion: Alternative procedures covered all 5 non-responses (EUR 620K). Each balance has documented evidence supporting existence at year end.

What reviewers and practitioners get wrong

• Ignoring the aggregate of untested balances. Teams sometimes perform alternative procedures only on the larger non-responses and treat smaller balances as individually immaterial, without assessing whether the aggregate of untested non-responses exceeds performance materiality (PM). ISA 330.24 requires the auditor to evaluate whether sufficient appropriate evidence has been obtained for the assertion as a whole, and the aggregate test against PM is the one inspectors ask about first.

Alternative procedures vs confirmation exceptions

A non-response and a confirmation exception trigger different audit paths. A non-response (no reply at all) triggers ISA 505.12 : the auditor must perform alternative procedures to obtain the evidence the confirmation was supposed to provide. A confirmation exception (the respondent replies but disagrees with the amount) triggers ISA 505.14 : the auditor must investigate the cause of the difference to determine whether it indicates a misstatement or a timing difference.

The practical distinction matters because the evidence already in hand is different. With an exception, you have a third-party statement that contradicts the entity's records, so the investigation focuses on explaining the gap. With a non-response, you have nothing from the third party, so the alternative procedures must build the evidence from scratch using the entity's own records and corroborating documents.

Key standard references

• ISA 505.12 : Requirement to perform alternative procedures when confirmation requests produce no response.
• ISA 505.14 : Investigating confirmation exceptions (disagreements in responses).
• ISA 505 .A20: Guidance on bank confirmation non-responses as a potential risk indicator.
• ISA 330.24 : Evaluating whether sufficient appropriate evidence has been obtained for the assertion.
• ISA 500.8 : Evaluating the relevance and reliability of audit evidence from different sources.

Related terms

Related reading

Frequently asked questions