Question 1

List three of the major factors affecting sample size for confirming accounts receivable.

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Question 2

U.S.auditing standards indicate that auditors should use external confirmations for accounts receivable.However,there are certain circumstances where confirmation may not be appropriated.List these three situations.

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Question 3

It is common to use a combination of positive and negative confirmations by sending the latter to accounts with large balances and the former to those with small balances.

Accepted Answer

It is common to use positive confirmations for accounts with large balances due to their higher risk, and negative confirmations for accounts with small balances, as they are considered lower risk.

Question 4

If auditors consider confirmations of accounts receivable to be ineffective evidence because response rates will be inadequate or unreliable,they need not confirm accounts receivable.

Accepted Answer

If auditors determine that confirmations of accounts receivable will not provide adequate or reliable evidence, they can choose to rely on other substantive procedures instead. However, the decision not to confirm accounts receivable should be based on a thorough assessment of the specific circumstances and risks involved.

Question 5

Describe each of the following types of confirmations:
• positive confirmation
• blank confirmation
• invoice confirmation
• negative confirmation

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Question 6

Discuss the alternative procedures an auditor can perform to test the existence objective for accounts receivable when customers do not respond to confirmation requests.

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Question 7

Confirmation of accounts receivable provide evidence related to the ________ objectives.
A)existence
B)accuracy
C)cutoff
D)all if the above

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Question 8

A confirmation is a type of audit evidence.

Accepted Answer

Confirmation is a type of audit evidence that provides direct communication from an independent third party about the completeness or accuracy of information provided by the auditee.

Question 9

Blank confirmations are considered less reliable than standard positive confirmations.

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Question 10

Discuss the advantages and disadvantages of using negative accounts receivable confirmations rather than positive confirmations.

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Question 11

When making the sampling decisions for accounts receivable confirmations,
A)it is important to sample some items for every material segment of the population.
B)if management refuses to allow the auditor to send confirmation requests to certain customers,the auditor must withdraw from the engagement.
C)inherent risk does not impact the sample size.
D)stratification of the sample is discouraged under current auditing standards.

Accepted Answer

When making sampling decisions for accounts receivable confirmations, it is important to sample some items for every material segment of the population to ensure reasonable assurance that misstatements or errors are not material. This approach is supported by current auditing standards. B is incorrect as the refusal of management does not always lead to the withdrawal of the auditor. C is incorrect as inherent risk impacts the sample size as higher inherent risk requires a larger sample size to achieve the same level of assurance. D is incorrect as stratification of the sample is encouraged under current auditing standards to obtain a representative sample.

Question 12

Negative confirmations normally require a larger sample size than positive confirmations.

Accepted Answer

Negative confirmations require a larger sample size because they are trying to prove the absence of a certain characteristic or attribute, which can be more difficult to prove with a smaller sample size. Positive confirmations, on the other hand, are trying to prove the presence of a certain characteristic or attribute, which can be easily demonstrated with a smaller sample size.

Question 13

When determining the timing of the accounts receivable confirmations,
A)the receivables cannot be confirmed at an interim date.
B)if accounts receivable are confirmed before year-end,the auditor typically prepares a roll-forward schedule.
C)if the receivables are confirmed at an interim date,they must also be confirmed at year-end.
D)if internal controls are adequate,the accounts receivable must be confirmed at year-end.

Accepted Answer

If accounts receivable are confirmed before year-end, the auditor typically prepares a roll-forward schedule to ensure that the accounts receivable balance at year-end is calculated accurately. The other options are not necessarily true or required.

Question 14

Briefly describe the circumstances in which it is acceptable to use negative confirmation requests.

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Question 15

The auditor should perform procedures to verify the addresses used for the accounts receivable confirmations.

Accepted Answer

The auditor should verify the addresses used for accounts receivable confirmations to ensure that the confirmations are being sent to the correct party and to detect any potential fraud or misrepresentation. This is typically done by comparing the addresses used for the confirmations to other documentation, such as customer contracts or shipping records.

Question 16

When an auditor uses negative confirmations,several factors must be considered.What are those factors?

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Question 17

Negative confirmations are less expensive,and less reliable,than positive confirmations.

Accepted Answer

Negative confirmations are less expensive as they only require the recipient to respond if they disagree with the information provided. However, they are also less reliable as there is a risk that the recipient may not respond even if the information is incorrect. Positive confirmations require the recipient to respond affirmatively, making them more reliable but also more expensive.

Question 18

Both U.S.and international auditing standards require the use of confirmations for accounts receivable.

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Question 19

Describe the differences between positive and negative confirmations.Which type is generally viewed as more reliable?

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Question 20

Stratification of accounts receivable is desirable when using confirmations.

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Quiz 16: Completing the Tests in the Sales and Collection Cycle: Accounts Receivable