Accounts Receivable Confirmations – CPA Audit
Multiple Choice Review
The negative request form of accounts receivable confirmation is useful particularly when the
assessed level of the risk of material misstatement relating to receivables is ______ and the
number of small balances is ______.
a. Low, Many
b. Low, Few
c. High, Few
d. High, Many ✔✔A
Option "a" is correct because the negative form is useful when the assessed level of the risk of
material misstatement is low, a large number of small balances are involved, and when the
auditor has no reason to believe the persons receiving the requests are unlikely to give them
consideration.
Option "b" is incorrect because the negative form is used when there are many small accounts
involved and the recipient is likely to consider the confirmation request.
Option "c" is incorrect because the assessed level of the risk of material misstatement is low
and, generally, there should be many accounts with small balances.
Option "d" is incorrect because the assessed level of the risk of material misstatement must be
low.
As one of the year-end audit procedures, the auditor instructed the client's personnel to
prepare a standard bank confirmation request for a bank account that had been closed during
the year. After the client's treasurer had signed the request, it was mailed by the assistant
treasurer. What is the major flaw in this audit procedure?
a. The confirmation request was signed by the treasurer.
b. Sending the request was meaningless because the account was closed before the year-end.
c. The request was mailed by the assistant treasurer.
d. The CPA did not sign the confirmation request before it was mailed. ✔✔C
Option "a" is incorrect because the treasurer (or an appropriate client representative) must sign
the confirmation request, thereby authorizing the bank to respond directly to the CPA.
Option "b" is incorrect because additional information may be gathered with respect to the
closed account including information of indebtedness to the bank, etc.
Multiple Choice Review
The negative request form of accounts receivable confirmation is useful particularly when the
assessed level of the risk of material misstatement relating to receivables is ______ and the
number of small balances is ______.
a. Low, Many
b. Low, Few
c. High, Few
d. High, Many ✔✔A
Option "a" is correct because the negative form is useful when the assessed level of the risk of
material misstatement is low, a large number of small balances are involved, and when the
auditor has no reason to believe the persons receiving the requests are unlikely to give them
consideration.
Option "b" is incorrect because the negative form is used when there are many small accounts
involved and the recipient is likely to consider the confirmation request.
Option "c" is incorrect because the assessed level of the risk of material misstatement is low
and, generally, there should be many accounts with small balances.
Option "d" is incorrect because the assessed level of the risk of material misstatement must be
low.
As one of the year-end audit procedures, the auditor instructed the client's personnel to
prepare a standard bank confirmation request for a bank account that had been closed during
the year. After the client's treasurer had signed the request, it was mailed by the assistant
treasurer. What is the major flaw in this audit procedure?
a. The confirmation request was signed by the treasurer.
b. Sending the request was meaningless because the account was closed before the year-end.
c. The request was mailed by the assistant treasurer.
d. The CPA did not sign the confirmation request before it was mailed. ✔✔C
Option "a" is incorrect because the treasurer (or an appropriate client representative) must sign
the confirmation request, thereby authorizing the bank to respond directly to the CPA.
Option "b" is incorrect because additional information may be gathered with respect to the
closed account including information of indebtedness to the bank, etc.
