Final answer:
Electronically confirming cash balances is acceptable for an audit of financial statements when it is properly controlled. This method is standard in audits and is reliable when secure processes are in place. Proper electronic confirmation helps ensure accurate verification of a company's liquidity and cash flow.
Step-by-step explanation:
For the purposes of an audit of financial statements, electronic confirmation of cash balances is acceptable when properly controlled. This audit procedure is a standard practice in modern auditing and allows auditors to confirm cash balances quickly and effectively. The use of electronic means is widespread for obtaining confirmation of cash balances and when done with proper control mechanisms in place, it maintains the requisite level of assurance for auditors to rely upon the information provided. However, auditors must be vigilant in ensuring that the electronic confirmation process is secure, reliable, and appropriately authorized to prevent fraud and error.
Understanding that cash is a highly liquid asset, its confirmation during an audit is a critical step. Businesses, individuals, and economies rely on this liquidity, as cash can be readily used for transactions, much like money stored in bank accounts. While balancing a checkbook helps manage cash flow and avoid fees, in auditing, the objective is to verify the actual availability and amount of cash stated on the financial statements.