Question 1

Blank confirmations are considered less reliable than standard positive confirmations.

Accepted Answer

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

Question 2

A confirmation is a type of audit evidence.

Accepted Answer

Confirmations are responses received from independent third parties, providing direct communication of certain facts or information related to financial statements. As such, they are a form of audit evidence.

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

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

Accepted Answer

Auditors must make sure they keep control of confirmations until they are returned from the customer to ensure they have received accurate and reliable information. This helps to prevent any possible alterations or tampering of the confirmation by the customer or any other parties.

Question 5

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 to determine the appropriate audit response.

Question 6

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 7

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 investigate and resolve the discrepancy. This may involve asking the client to reconcile the difference through a review of their records or communicating directly with the customer to resolve any misunderstandings. It is important for the auditor to ensure the accuracy and completeness of the financial statements, including the accounts receivable balance.

Question 8

Stratification of accounts receivable is desirable when using confirmations.

Accepted Answer

Stratification or categorization of accounts receivable into different groups based on different factors such as age or amount helps in determining the appropriate sample size and selecting the accounts to be confirmed. This ensures greater accuracy of confirmations and reduces the risk of misstatements in the financial statements.

Question 9

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 10

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 11

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

The answer of If auditors consider confirmations of accounts receivable...

Question 12

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 factors...

Question 13

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

Accepted Answer

Tests of details of balances are used to test the accuracy of the year-end balances of balance sheet accounts.

Question 14

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

Accepted Answer

Negative confirmations only require a response if there is a disagreement, which is less frequent than agreement. This makes them less expensive, but also less reliable as a potential disagreement may go unnoticed. Positive confirmations require a response regardless of agreement or disagreement, making them more reliable but also more expensive.

Question 15

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

Accepted Answer

This is because larger and older accounts have a higher risk of material misstatement, and therefore require more attention during the audit.

Question 16

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 17

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

The answer of When a customer does not return an...

Question 18

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 19

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

Accepted Answer

This is because negative confirmations are based on the absence of something, which can be harder to detect with certainty. Therefore, a larger sample size is needed to increase the likelihood of detecting any potential negative results.

Question 20

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...

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