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Multiple Choice
Which of the following is NOT a substantive procedure used to obtain evidence about contingencies related to receivables?
A
Reviewing correspondence with legal counsel regarding potential litigation
B
Examining minutes of board meetings for discussions of contingent liabilities
C
Obtaining a letter of representation from management
D
Sending confirmations to customers regarding outstanding receivable balances
Verified step by step guidance
1
Understand the question: The problem is asking which of the listed procedures is NOT a substantive procedure used to obtain evidence about contingencies related to receivables. Substantive procedures are audit tests designed to detect material misstatements in financial statements.
Analyze each option: Review the purpose of each procedure to determine if it directly relates to identifying contingencies associated with receivables.
Option 1: 'Reviewing correspondence with legal counsel regarding potential litigation' - This is a substantive procedure because legal counsel correspondence can reveal potential contingent liabilities related to receivables.
Option 2: 'Examining minutes of board meetings for discussions of contingent liabilities' - This is also a substantive procedure, as board meeting minutes may disclose discussions about contingent liabilities, including those related to receivables.
Option 3: 'Sending confirmations to customers regarding outstanding receivable balances' - This is NOT a substantive procedure for contingencies. Instead, it is a procedure to verify the existence and accuracy of receivables, not to identify contingencies. Therefore, this is the correct answer.