Question

In their work on accounts receivable and elsewhere in an audit, the independent auditors often make use of confirmation requests. a. Why is the confirmation of accounts receivable a mandatory audit procedure? Explain. b. Discuss the situations in which negative confirmations apply

Answer 1

Confirmation of accounts receivable selected from the trial balance is the most common test of details of balances for the valuation of accounts receivable & its existence
so this amount is reported in the balance sheet and therefore needs to be accurate.
Because the financial statements should depict true and fair view and should be free from misstatements as these are relied upon by various stakeholders going through the financial statements.
Confirmation of accounts receivable is generally accepted auditing procedure. In performing this procedure, auditors use positive confirmations or negative confirmations or a combination of both
Situations where negative confirmations are used:
1. The assessed level of risk of material misstatements is low and sufficient appropriate audit evidence has been obtained on operating effectiveness of controls.
2. A large number of small balances are involved
3. A low exception rate is expected
4. The auditors are not aware of circumstances that would cause recipients ofthe request to disregard them