External Confirmation ch#14 Flashcards
Can a client send confirmation to debtor or recieve the answer on the behalf of the auditor?
No it will be an indirect confirmation which isn’t valid only a direct confirmation is allowed.
Auditor to third party
What if the management gives wrong address of the debtor or creditor to the auditor?
It will increase the risk of fraud
If the debtor is bankrupt and no reply of the confirmation is received by the auditor what will the Auditor do?
The auditor will perform the alternate procedure of bankruptcy
Can the auditor exempt small debtors while sending confirmation?
No he needs to collect sample from every class as immaterial can become material combinely
Which assertions are verified by external confirmations?
Existence
Rights and obligations
Accuracy valuation and allocation.
Which assertion is not verified by external confirmation?
A) cut off
B) rights and obligations
C)completeness
D)Existence
C)Completeness
If time is limited how will an auditor get external confirmation quickly?
1) He can do interim audit
2)Email
What are the conditions which need to be met in order to send negative confirmation?
1) large number of small balances
2)inherent and control risk are low
3) low exception rate
4) auditor is not aware of circumstances that confirming party will disregard the request
If an auditor is performing interim audit what extra procedures he need to perform
1)Compare individual balances at year end with balances at interim date
2)For transactions between interim date and final date
a)select a sample of transactions and perform test of controls
b)select a sample of material transactions and perform tests of details with supporting documents.
3)Send confirmation at year end if necessary
Which exception rate is considered high while sending negative confirmation?
A)more than 10%
B)less than 12%
C)Less than 15%
D)more than 15%
D)more than 15%
do all 4 conditions needs to be met in order to send negative confirmation or only one is enough?
All need to be met
A conclusion drawn as per working is there are no unrecorded liabilities as confirmations have been received from all selected parties and no differences were noted hence no further test is required
Is this statement valid?
This is the statement of completeness which isn’t verified by external confirmation.
For verifying completeness of liabilities good received note and analytical procedures(comparison with last year) are performed
What is meant by asjusting event?
An event occured in next year but recorded in this year
Examples
1) Bankruptcy of debtors
2) NRV of inventory below cost
3)Decision of legal case
4) Return of defective inventory
5) Going concern inappropriate
If a detective inventory is sent back what the client needs to do?
1)Sales return record
2)inventory at NRV
What is positive confirmation, what’s the risk associated with ut and how can we tackle that risk?
A) it’s a request which asks confirming party ro reply in all cases whether he agrees or disagrees
B) Confirming party may respond without verification
C)Blank confirmation
What’s negative confirmation and what is the risk associated with it?
It asks confirming party to reply only if he disagrees with the information.
There is no explicit evidence that confirming party recieved the request and verified it
Identify the errors or omissions in the following format of confirmation letter
Error or omission can be date,indirect,reason of disagreement
If an auditor gets a tempered confirmation what’s the course of action
Treat it as non response and request again and/or perform alternative procedure
Risk of fraud is increased as integrity is doubtful
If a debtor respond sue us do whatever you can what’s the procedures of auditor?
He will perform the procedures of bad debt
state the circumstances in which an auditor may decide not to circulate the request for direct confirmation
1)When inherent risk and control risk or assessed as low
2)when total balance is not material
4)when sufficient evidence can be obtained from other substantive procedures 4)when management request auditor not to send confirmation request and their is a reasonable justification for this.
What are the factors that an auditor considers while designing the request for direct confirmation
1)Timing of confirmation 2)appropriate conforming parties
3)the information to be requested.
4)Type of confirmation 5)obtain signature of authorised representative.
6)appropriate procedure should be performed on a replies
7) preparation of summary and reaching a conclusion
What procedure in auditor performs if thevconforming party responds via email?
Auditor obtain evidence whether sources is authentic and the communication process is secured and controlled(digital signature,encryption)
What course of action will the auditor perform if the response of the conforming party is oral?
1) request balance in writing because oral response does not meet definition of confirmation letter.
2) if written response is not received this is same as non response.
Define external confirmation identify any four situations where auditor can use direct confirmation.
It is a procedure of obtaining evidence by auditor directly from a third party in written form.
Confirmation procedure is used to confirm information from debtors,creditors,banks,and lawyers third party holding inventory of the company and investment held by brokers.
