[Hussainsajwani]

I am answering some T/F on CpaExcel and I feel like they have made a mistake at least for #1. The rest I may not understand. Can someone explain to me the reasoning behind each of the answer. Please and thank you.

#1. Confirmation of accounts receivable is a generally accepted auditing standard.

CPA EXCEL ANSWER: FALSE

https://pcaobus.org/Standards/Auditing/pages/au330.aspx … scroll down to 0.34 it says “Confirmation of accounts receivable is a generally accepted auditing procedure. “

#2. Second requests are ordinarily sent for positive form confirmations requests when the first request is not returned.

CPA EXCEL ANSWER: TRUE

Why would the second request be positive (am I to assume the first was negative?). If first was negative, and then you send positive to those who did not reply doesn’t that defeat the purpose of sending negative confirmations in the first place?

#3 Auditors should always confirm the total balances of accounts rather than individual portions (e.g., if the balance is made up of three sales, all three should be confirmed).

CPA EXCEL ANSWER: FALSE

Is the answer false because by sending confirmations about each invoice you are getting a more detailed confirmation? Won’t most vendors rather have just one number on them handy that they would prefer to confirm with, i.e. the number being the total amount of money owed rather than breakdown of each invoice, also it makes them do more work so less chance they will reply?

#4 Auditors may ignore individually immaterial accounts when confirming accounts receivable.

CPA EXCEL ANSWER: FALSE

Why wouldn’t the auditor ignore immaterial accounts. They are immaterial!

[Anonymous]

#1
CPA Excel: “Confirmation of accounts receivable is a generally accepted auditing standard.”
pcaobus.org: “Confirmation of accounts receivable is a generally accepted auditing procedure.”
The key is “standard” vs “procedure”.

#2
Wording confusion. The wording indicates that the first request was positive, but not returned, so the true/false is saying that a second request would then be sent. However, the wording isn't very clear. It would be better if it was rearranged to say “When the first requestion for positive form confirmations isn't returned, second requests are ordinarily sent.”

#3
Answer is false because auditors can't confirm every number that makes up the balance, but instead tries to take a sample that allows them to make a reasonable assumption about the rest of them. For example, accounts receivable might have 100,000 accounts in it. They can't confirm all 100,000 with 100,000 customers, but they can send out 1,000 negative confirmations (or maybe that's even too many lol), and get back 100, and from that if they're pretty good make an assumption that the others are pretty good.

#4
Auditors look at 2 things: “Is it right or wrong?” and “Is it material?” So, they don't ignore immaterial ones, but aggregate them to see if they're indicative of a problem. If every confirmation they get back is off, there's an indication that the records are crappy. Even if the differences aren't much and offset each other (one over by $100, one under by $300, the next one over by $200, so nets to $0), the fact that they're all wrong is still concerning. Pretend the question is about the bank sending you bank statements. If your bank statements were wrong, but not material, would you ignore it? Also, I think the other key here is the “individually immaterial”. If materiality is $1000 (small audit 🙂 ), and I have 6 confirmations that are each off by $400, each one is individually immaterial, but altogether are $2400, so over materiality threshold. So basically, if it says “The auditor ignores it”, they're probably not going to want you to agree with the auditor ignoring *anything*. If it says “ignore”, stop and think through if there's any possible way that the information could be useful, cause it probably is.

[Biff-1955-Tannen]

#1 I think what they're getting at is that it is a procedure, not a standard
#2 It's saying that you originally sent a positive confirmation, and you would need to send a second positive confirmation because a non-response (with a positive confirmation) does not give any assurance. With a negative confirmation you would not send a second confirmation because the non-response is giving negative assurance that the balance is correct.
#3 I think it's getting at you will use samples (of the population) instead of actually testing the entire population
#4 I think it's getting at you wouldn't ignore them because they could be material in the aggregate.

Somebody correct me if I'm wrong.

dang Lilla beat me to it

AUD 93 Jan 16
BEC 83 Feb 16
FAR 83 Apr 16
REG 84 May 16

99% Ninja MCQ only

[Hussainsajwani]

You guys are awesome thank you!!! Keep up the good work of replying to those struggling!

[Author]

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