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Questions and Answers
What is the purpose of a positive confirmation in auditing?
What is the purpose of a positive confirmation in auditing?
Under what circumstances is negative confirmation typically used?
Under what circumstances is negative confirmation typically used?
Why is positive confirmation considered more reliable than negative confirmation?
Why is positive confirmation considered more reliable than negative confirmation?
What situation would lead an auditor to use positive confirmation?
What situation would lead an auditor to use positive confirmation?
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What characteristic of account balances typically prompts the use of negative confirmation?
What characteristic of account balances typically prompts the use of negative confirmation?
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Study Notes
Positive Confirmation
- Auditors send this confirmation to a client's customer, requesting a response directly whether the stated amount owed is correct or incorrect.
- The auditor requests that the customer provide specific information like their account balance with the entity.
- This confirmation is used when the information the auditor needs is only available outside the company.
- It’s used when an entity’s information systems and internal controls are unreliable or ineffective.
- It’s used when fraud risk factors, such as management overriding internal controls, prevent the auditor from relying on evidence from the entity.
- It’s used when account balances comprise a small number of large accounts.
- Positive confirmation is considered more reliable but more costly than negative confirmation.
Negative Confirmation
- Auditors send this conformation to a client’s customer, but only request a response if the customer disagrees with the amount stated on the confirmation.
- This type of confirmation is used when there is no reason to believe recipients of negative confirmation requests will disregard them.
- It’s used when receivables comprise a large number of small, homogenous, account balances, transactions or conditions.
- It’s used when the auditor has assessed the risk of material misstatement as low and has obtained sufficient appropriate audit evidence regarding the operating effectiveness of controls relevant to the assertion.
- It’s used when very few or no exceptions are expected.
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Description
This quiz explores the auditing techniques of positive and negative confirmations. It highlights how auditors use these methods to verify account balances and assess the reliability of information. Test your knowledge on when to use each type of confirmation and their implications in the auditing process.
