EXTERNAL CONFIRMATIONS, RECEIVABLES AND SALES

In order to gather sufficient, appropriate evidence, the auditor may make use of external confirmations. These may take the form of being a positive or negative request.

Which of the following statements is/are true?

• 1. A positive confirmation request for trade receivables asks respondents to reply to the auditor indicating whether they agree with the information provided

• A negative confirmation request is a professional way for the auditor to ask for a response only if there is a problem

An audit program for trade receivables includes the following procedure:

“Obtain the list of accounts receivable and agree the total to the general ledger.”

What assertion does this test?

• Completeness

• Valuation

• Rights

• Existence

Which of the following would NOT explain why a customer confirms a balance that is less than the account receivable balance?

• Goods were despatched shortly before the year end

• A credit note was raised shortly before the year end

• Payment was sent shortly before the year end

• A misappropriation of cash

In which of the following circumstances would a negative form of external confirmation request be inappropriate?

• When internal controls are strong

• When the population consists of a large number of small accounts

• When errors are not expected

• When it is expected that respondents will ignore requests

Which of the following procedures is LEAST likely to detect the risk of management override?

• Assess post year-end sales values

• 1. Observing the company's physical count of inventory

• Testing the design and implementation of internal controls over inventory valuation

• Performing substantive analytical procedures on inventory turnover ratios