Confirmations

Question 1

List two alternative procedures for a nonresponse to a positive confirmation (usually performed after a second request was sent but no response was received).

Answer 1

Either:

1. )Verify subsequent cash receipts; or
2. )Examine underlying documents for apparent validity.

Question 2

What is meant by the term “negative confirmation”?

Answer 2

A response is requested only in the event the confirming party disagrees with the identified balance. A non response is vewed as indicating that party’s agreement.

Question 3

List the two general types of confirmations.

Answer 3

Positive

Negative

Question 4

What is meant by the term “positive confirmation”?

Answer 4

A response is requested whether or not the confirming party agrees with the entity’s recorded amount. A nonresponse indicates a “lose end” that must be resolved.

Question 5

When might negative confirmations be justified?

Answer 5

1. )When the financial statement item involves a large number of small (immaterial) accounts
2. )When control risk is low (i.e., internal control is viewed as effective)
3. )When recipients are expected to pay attention to the request