External Confirmation (2)

Question 1

Which method is generally preferable?

Answer 1

Positive method, as it is designed to encourage definite replies from those contacted

Question 2

What provides less persuasive audit evidence?

Answer 2

The negative method as it should not be used as the sole substantive procedure to audit receivables

Question 3

Negative method should not be used as sole substantive procedure to audit receivables unless all are met (misstatement)

Answer 3

Risk of material misstatement has been assessed as low

Question 4

Negative method should not be used as sole substantive procedure to audit receivables unless all are met (audit evidence controls)

Answer 4

Auditor has obtained sufficient appropriate audit evidence on operating effectiveness of relevant controls

Question 5

Negative method should not be used as sole substantive procedure to audit receivables unless all are met (homogeneous account balances)

Answer 5

Population consists of a large number of small, homogenous account balances

Question 6

Negative method should not be used as sole substantive procedure to audit receivables unless all are met (exception rate)

Answer 6

A very low exception rate is expected

Question 7

Negative method should not be used as sole substantive procedure to audit receivables unless all are met (disregard requests)

Answer 7

Auditor is not aware of circumstances of conditions that would cause customers to disregard the requests