Topics: Financial audit, Audit, Auditing Pages: 1 (270 words) Published: April 28, 2013
To add to your discussion question regarding the type of confirmations we should as well Consider prior experience with the clients in terms of confirmation response rates, misstatement identified, and the accuracy of returned confirmations when assessing the reliability of accounts receivables confirmations. For example, if response rates were law in prior audits, we might consider obtaining evidence using alternative procedures (like examination of customer orders, shipping documents, and duplicate sales orders). When confirming accounts receivables, the auditor may use positive confirmations, negative confirmations, or a combination of both. Although the use of negative confirmations is less expensive than positive confirmations, negative confirmations are less reliable. Therefore, negative confirmations should be used only in certain circumstances. Discuss those circumstances.

The negative form requests the recipient to respond only if he or she disagrees with the information stated on the request. Negative confirmation requests may be used to reduce audit risk to an acceptable level when: (a) The combined assessed level of inherent and control risk is low (b) A large number of small balances is involved

(c) The auditor has no reason to believe that the recipients of the requests are unlikely to give them consideration. For example, in the examination of demand deposit accounts in a financial institution, it may be appropriate for an auditor to include negative confirmation requests with the customers' regular statements when the combined assessed level of inherent and control risk is low and the auditor has no reason to believe that the recipients will not consider the requests. The auditor should consider performing other substantive procedures to supplement the use of negative confirmations.
Continue Reading

Please join StudyMode to read the full document

You May Also Find These Documents Helpful

  • 401k Enrollment Project Essay
  • What You Should Know About 401k Plans Research Paper
  • Advantages and Disadvantages: 401k Plan to the Employer and Employee Essay

Become a StudyMode Member

Sign Up - It's Free