Receivables circularisation aims to test which aspects?

Receivables circularisation aims to test which aspects?

• A. Existence and rights and obligations
• B. Valuation only
• C. Completeness only
• D. Presentation and disclosure

Answer: (A)

Receivables circularisation is an external confirmation method used to verify what the entity is owed. The key purpose is to obtain evidence about the existence of the receivable and the entity’s right to collect it. When a debtor confirms the balance, it provides strong evidence that the asset exists and that the debtor acknowledges owing that amount to the entity. It also helps establish rights and obligations because the confirmation indicates who owes the money and to whom; if the receivable had been factored or assigned, the debtor’s response can reveal that the entity no longer holds the right to collect it. This procedure isn’t primarily about valuation, completeness, or presentation and disclosure—though confirmations can highlight disputes that affect valuation and can inform disclosures, the main aim is to confirm existence and rights to the receivable.

Receivables circularisation is an external confirmation method used to verify what the entity is owed. The key purpose is to obtain evidence about the existence of the receivable and the entity’s right to collect it. When a debtor confirms the balance, it provides strong evidence that the asset exists and that the debtor acknowledges owing that amount to the entity. It also helps establish rights and obligations because the confirmation indicates who owes the money and to whom; if the receivable had been factored or assigned, the debtor’s response can reveal that the entity no longer holds the right to collect it. This procedure isn’t primarily about valuation, completeness, or presentation and disclosure—though confirmations can highlight disputes that affect valuation and can inform disclosures, the main aim is to confirm existence and rights to the receivable.