Question

Auditors send bank confirmations for most active bank accounts. Are Bank confirmations required under AICPA or PCAOB auditing standards? How does this compare to the requirements for confirmation of accounts receivable?

Answer 1

PCAOB stands for Public Company Accounting Oversight Board (PCAOB) is a non-profit organization that regulates auditors of publicly traded companies. The purpose of PCAOB is to minimize audit risk.

AICPA stands for American Institute of Certified Public Accountants.

Prior to 2002, U.S. auditing standards were set by the AICPA. After a series of corporate failures rocked the investment community, the PCAOB was born. They would now set the auditing standards for large publicly traded companies.

Bank confirmations are not required under US auditing standards. However, confirmations of accounts receivables are required by US auditing standards. According to PCAOB standard AU Section 330, confirmation of accounts receivable is a generally accepted auditing procedure(GAAP).

Firstly discuss about requirement of AU Sec 330 , what are required under AU 330

1. Discusses the relationship of confirmation procedures to the auditor's assessment of audit risk.

2.Describes certain factors that affect the reliability of confirmations.

3.Provides guidance on performing alternative procedures when responses to confirmation requests are not received.

4. Specifically addresses the confirmation of accounts receivable.

5.Unusual or complex transactions may be associated with high levels of inherent risk and control risk. If the entity has entered into an unusual or complex transaction and the combined assessed level of inherent and control risk is high, the auditor should consider confirming the terms of the transaction with the other parties in addition to examining documentation held by the entity.

AS 2310 specifies confirmation Standard-

Accounts receivable means—

1. The entity's claims against customers that have arisen from the sale of goods or services in the normal course of business, and
2. A financial institution's loans.

Confirmation of accounts receivable is a generally accepted auditing procedure. It is generally presumed that evidence obtained from third parties will provide the auditor with higher-quality audit evidence than is typically available from within the entity. Thus, there is a presumption that the auditor will request the confirmation of accounts receivable during an audit unless one of the following is true:

• Accounts receivable are immaterial to the financial statements.
• The use of confirmations would be ineffective.

An auditor who has not requested confirmations in the examination of accounts receivable should document how he or she overcame this presumption.