Question

During the audit of Shu Inc., Jeffrey Dobby has assessed the risk of material misstatement for accounts receivable as low. He has gathered sufficient appropriate audit evidence that internal controls are effective. The population of accounts receivable consists of a small number of large account balances. Jeffrey expects a low exception rate and is not aware of any circumstances that would cause the recipients to disregard the information? Which type of confirmation should Jeffrey use?

1) Duplicate
2) Affirmative
3) Positive
4) Negative

Answer 1

Jeffrey should use positive confirmation for the audit of accounts receivable due to low risk and a small number of large account balances.

Step-by-step explanation:

Based on the information provided, Jeffrey should use positive confirmation for the audit of accounts receivable. Positive confirmation is used when an auditor expects a low exception rate and has assessed the risk of material misstatement for the account as low. In this case, Jeffrey has gathered sufficient evidence that internal controls are effective and expects a low exception rate, indicating low risk.

Positive confirmation involves sending a confirmation request to the account holders, asking them to respond whether the balance stated on the confirmation is correct or not. This type of confirmation provides reliable audit evidence for large account balances with a small number of recipients.