Confirmation

Question 1

What is external confirmation?

Answer 1

Evidence obtained as a response from a third party (confirming party)

Does not include when management gives access codes to access third party confirmations

Question 2

T/F: The auditor does not need to maintain control over all aspects of external confirmations?

Answer 2

False!! They should maintain ALL control

In terms of drafting, mailing, handling receipt of confirmation

Management refusal very likely would be a scope limitation. That would affect the audit opinion.

Question 3

What are the two types of confirmations?

Answer 3

Positive and negative confirmation

Question 4

Define a positive confirmation?

Answer 4

Requests a response whether or not the recipient agrees with the clients balance

“blank” confirmation does not include a dollar amount, but asks the client to fill in the blank. Has a lower response rate!

Question 5

Do blank confirmations have a lower response rate?

Answer 5

Yes- this has a low response rate.

Question 6

What needs to happen if auditors don’t receive a response to the positive confirmation?

Answer 6

A second follow-up request needs to happen

Question 7

After two attempts at confirmation, what does the auditor need to do?

Answer 7

Must move to alternate procedures

Question 8

What is a negative confirmation?

Answer 8

Requests a response ONLY if they disagree.

• A non-response is shown as a agreement (a big assumption)

Question 9

What are some alternative procedures related to receivables and payables?

Answer 9

• Receivables: Look to see if cash was received subsequent to the date of conformation or look to the supporting documentation of the transaction to verify the validity
• Payables: The auditor should verify subsequent cash disbursements as evidence of payment of the account