Question 1

Each client misstatement in accounts receivable must be analyzed to determine whether it was consistent with the original assessed level of control risk.

Accepted Answer

Each client misstatement in accounts receivable must be analyzed to determine whether it was consistent with the original assessed level of control risk in order to determine the appropriate audit response.

Question 2

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

Accepted Answer

The answer of Briefly describe the circumstances in which it...

Question 3

When sending confirmations during most audits of accounts receivable, the emphasis is often on confirming larger and older accounts.

Accepted Answer

Confirming larger and older accounts is a common practice during audits of accounts receivable as they represent higher risk and potential for misstatement.

Question 4

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

Accepted Answer

The answer of Discuss the alternative procedures an auditor can...

Question 5

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 6

When a customer does not return an accounts receivable confirmation, it is acceptable, without performing alternative procedures, to assume the amount is 100% overstated when generalizing from the sample to the population.

Accepted Answer

When a customer does not return an accounts receivable confirmation, it is acceptable to assume the amount is 100% overstated when generalizing from the sample to the population because the auditor has no evidence to support the existence of the receivable.

Question 7

Describe each of the following types of confirmations:
•Positive confirmation
•Blank confirmation
•Invoice confirmation
•Negative confirmation

Accepted Answer

The answer of Describe each of the following types of...

Question 8

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

Accepted Answer

The answer of When an auditor uses negative confirmations, several...

Question 9

A confirmation is a type of audit evidence.

Accepted Answer

Confirmations are a type of audit evidence where auditors obtain direct communication from third parties to corroborate financial statement assertions.

Question 10

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

Accepted Answer

The answer of Both U.S.and international auditing standards require the...

Question 11

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

Accepted Answer

The answer of Discuss the advantages and disadvantages of using...

Question 12

Stratification of accounts receivable is desirable when using confirmations.

Accepted Answer

Stratification of accounts receivable allows for the confirmation process to be more targeted and efficient, by focusing on accounts with higher balances or higher risk of misstatement.

Question 13

When a customer disagrees with the amount shown on an account receivable confirmation, the auditor should not ask the client to reconcile the difference.

Accepted Answer

If a customer disagrees with the amount shown on an account receivable confirmation, the auditor should ask the client to reconcile the difference and investigate the reasons for the discrepancy.

Question 14

Blank confirmations are considered less reliable than standard positive confirmations.

Accepted Answer

The answer of Blank confirmations are considered less reliable than...

Question 15

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

Accepted Answer

Auditors may choose alternative procedures if they believe confirmations will not provide reliable evidence, such as when response rates are expected to be low.

Question 16

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

Accepted Answer

This is because negative confirmations are trying to prove the absence of something, which requires a larger sample size to be confident in the results. Positive confirmations, on the other hand, are trying to prove the presence of something and can often be achieved with smaller sample sizes.

Question 17

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

Accepted Answer

Negative confirmations rely on the assumption that if someone does not dispute a statement, it must be true. This is less reliable than the direct confirmation of a positive response. Additionally, negative confirmations may be less expensive because they require less effort and resources, but this comes at the cost of reduced reliability.

Question 18

Auditors must maintain control of confirmations until they are returned from the customer.

Accepted Answer

Auditors must maintain control of confirmations until they are returned from the customer in order to ensure the reliability and independence of the confirmation process. This includes ensuring that confirmations are sent to the correct party, following up on non-responses or discrepancies, and retaining the confirmations as evidence for the audit trail.

Question 19

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

Accepted Answer

The answer of List three of the major factors affecting...

Question 20

Tests of details of balances focus on testing the year-end balances of balance sheet accounts.

Accepted Answer

Tests of details of balances specifically target the year-end balances of balance sheet accounts to ensure that they are fairly stated in the financial statements. As such, this statement is true.

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