Concepts and Standards - Confirmation Flashcards
Under which of the following circumstances should an auditor consider confirming the terms of a large complex sale?
When the combined assessed level of inherent and control risk over the sale is high.
In which circumstance is the confirmation of receivables on October 31 most likely for a client with a December 31 year-end?
Appropriate audit tests indicate that control risk for receivables is low.
Why?
because when control risk for receivables is low the auditor may be more likely to confirm receivables at an interim date.
An auditor confirmed accounts receivable as of an interim date, and all confirmations were returned and appeared reasonable. Which of the following additional procedures most likely should be performed at year-end?
Review supporting documents for new large balances occurring after the interim date, and evaluate any significant changes in balances at year-end.
In confirming a client’s accounts receivable in prior years, an auditor discovered many differences between recorded account balances and confirmation replies. These differences were resolved and were not misstatements. In defining the sampling unit for the current year’s audit, the auditor most likely would choose
Individual invoices.
Why?
Sampling individual invoices may make it easier for customers to reply accurately (particularly when those customers use a voucher system in which liabilities are recorded by individual purchase).
Under which of the following circumstances would using the blank form of confirmation of accounts receivable most likely be preferable to other types of positive confirmations?
Recipients are likely to sign other types of positive confirmations without careful investigation.
Why?
Auditor may reduce the risk relating to recipients signing confirmation requests without careful investigation by using positive confirmation requests that do not state the amount on the confirmation request (a “blank form” of confirmation request) and asking whether the confirming party fill in the amount or other information requested.
Which of the following statements is correct concerning the use of negative confirmation requests?
Unreturned negative confirmation requests rarely provide significant explicit evidence.
During the confirmation of accounts receivable, an auditor receives a confirmation via the client’s fax machine. Which of the following actions should an auditor take?
Accept the confirmation but verify the source and content through a telephone call to the respondent.
Which of the following strategies most likely could improve the response rate of the confirmation of accounts receivable?
Including a list of items or invoices that constitute the account balance.
Note:
providing a list of items or invoices may make it easier for a respondent to reply; while any of the other replies may or may not increase the response rate, this one is most likely to because it may make obtaining the information much easier for individuals with information systems which are organized about invoices.
