What are the circumstances under which confirmation of accounts receivable is not required?
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AICPA auditing standards address the confirmation of accounts receivable for private company audits. What are the circumstances under which confirmation of accounts receivable is not required? Show
Answer & Explanation Solved by verified expert llentesque dapibus efficitur laoreet. Nam risus ante, dapibus a molestie consequat, ultrices ac magna. Fusce dui lectus, congue vel laoreet ac, dictum vitae odio. Donec aliquet. Lorem ipsum dolor sit amet, consectetur adipiscing elit. Nam lacinia p trices ac magna. Fusce dui lectus, congue vel laoreet ac, dictum vitae odio. Donec Unlock full access to Course Hero Explore over 16 million step-by-step answers from our library Subscribe to view answer docx Student reviews 83% (6 ratings) When is the confirmation of receivables required? Confirmation of Receivables is Usually RequiredAU-C 330 paragraph 20 states the following: The auditor should use external confirmation procedures for accounts receivable, except when one or more of the following is applicable:
If receivables are material and confirmation procedures will be effective, then confirmations must be sent. (Normally, the existence assertion related to receivables is moderate to high. So, 3. above is not in play.) When are Confirmations Ineffective?AU-C 330.A56 states: External confirmation procedures may be ineffective when based on prior years’ audit experience or experience with similar entities:
If the auditor has experienced poor response rates to properly designed confirmation requests in prior audits, the auditor may instead consider changing the manner in which the confirmation process is performed, with the objective of increasing the response rates or may consider obtaining audit evidence from other sources. Alternative Procedures When Confirmations are not SentWhat audit procedure should be performed if confirmations are not sent? Usually, the auditor will examine cash collections after the period-end. Care must be taken to ensure that the subsequent collections examined relate to receivables that existed at period-end and not to sales occurring after period-end. Required Documentation When Confirmations are not SentAU-C 330.31 states that “the auditor should include in the audit documentation the basis for any determination not to use external confirmation procedures for accounts receivable when the account balance is material.” So, it is not sufficient to simply state that the use of confirmations is ineffective. We should state that we tried to confirm receivables in a prior year without effective results or that we tried to confirm receivables for clients in a similar industry, but without effective results. The auditor should include a memo to the file or add comments on the receivables work paper explaining why confirmations were not sent. See my post: Auditing Receivables and Revenues. Learn from my CPA Hall Talk newsletter!Get my free accounting and auditing digest with the latest content. Under what circumstances is it acceptable to confirm accounts receivable before the balance sheet date?It is acceptable to confirm accounts receivable prior to the balance sheet date if the internal controls are adequate and can provide reasonable assurance that sales, cash receipts, and other credits are properly recorded between the date of the confirmation and the end of the accounting period.
Under which of the following circumstances would the use of the blank form of confirmations of accounts receivable most likely be preferable to positive confirmations?Under which of the following circumstances is the use of the blank form of positive confirmation of accounts receivable most likely preferable? The recipients are likely to sign the confirmations without devoting proper attention to them.
What is the main reason for confirming accounts receivable?The accounts receivable confirmation is sent to the customers to confirm whether the balances on the auditee business' ledgers match the balances on the customer's ledgers. In case these balances do no match, the valuation on the ledgers should be questioned.
Which of the following are factors to consider when designing accounts receivable a/r confirmation requests?Factors such as the form of the confirmation request, prior experience on the audit or similar engagements, the nature of the information being confirmed, and the intended respondent should affect the design of the requests because these factors have a direct effect on the reliability of the evidence obtained through ...
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