FMGT 4310 - Chapter 10 Part 2
Test of details of balances included: - ANS-- A/R confirmations
- Evaluate the adequacy of AFDA
What are the important notes for A/R Confirmations - ANS-- CAS does not require the use of
confirmations and leaves the use of confirmations up to the auditor
- Confirmations may be more relevant to certain assertions
Auditor will use confirmations unless the following are true: - ANS-- A/R is immaterial
- Auditor believing confirmations are useless due to response rate will be inadequate
- IR and CR is low, and other substantive evidence can provide evidence
What are the underlying assumptions with accepting confirmations? - ANS-1. Person returning
the confirmation is independent of the company
2. Person returning the confirmation has knowledge of the account and the intent of the
confirmation and has completed the confirmation after performing due diligence
What are the decisions when regarding confirmations? - ANS-1. Type of confirmation to use
2. timing of the procedure
What is Positive Confirmation? - ANS-- Request that the debtor respond (Whether or not) the
balance is correct
- Or, can ask the debtor to indicate amount owed at a certain date
What is Negative Confirmation? - ANS-Request that a debtor respond (only if the debtor
believes the amount printed on the confirmation is wrong
Breakdown the potential errors for Negative Confirmation: - ANS-- May assume a non-response
signifies debtor's agreement
- Impossible to determine whether a lack of response indicate agreement with the balance or
simply a failure to reply
What type of confirmation will provide more reliable evidence and why? - ANS-Positive
Confirmation because:
- Auditors can perform follow-up procedures if the response was not received or agreed upon
Test of details of balances included: - ANS-- A/R confirmations
- Evaluate the adequacy of AFDA
What are the important notes for A/R Confirmations - ANS-- CAS does not require the use of
confirmations and leaves the use of confirmations up to the auditor
- Confirmations may be more relevant to certain assertions
Auditor will use confirmations unless the following are true: - ANS-- A/R is immaterial
- Auditor believing confirmations are useless due to response rate will be inadequate
- IR and CR is low, and other substantive evidence can provide evidence
What are the underlying assumptions with accepting confirmations? - ANS-1. Person returning
the confirmation is independent of the company
2. Person returning the confirmation has knowledge of the account and the intent of the
confirmation and has completed the confirmation after performing due diligence
What are the decisions when regarding confirmations? - ANS-1. Type of confirmation to use
2. timing of the procedure
What is Positive Confirmation? - ANS-- Request that the debtor respond (Whether or not) the
balance is correct
- Or, can ask the debtor to indicate amount owed at a certain date
What is Negative Confirmation? - ANS-Request that a debtor respond (only if the debtor
believes the amount printed on the confirmation is wrong
Breakdown the potential errors for Negative Confirmation: - ANS-- May assume a non-response
signifies debtor's agreement
- Impossible to determine whether a lack of response indicate agreement with the balance or
simply a failure to reply
What type of confirmation will provide more reliable evidence and why? - ANS-Positive
Confirmation because:
- Auditors can perform follow-up procedures if the response was not received or agreed upon
