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) Negative
2) Duplicate
3) Affirmative
4) Positive

Answer 1

Jeffrey should use positive confirmation in this scenario.

Step-by-step explanation:

Jeffrey should use Positive confirmation in this scenario.

Positive confirmation is used when the auditor expects a low exception rate and has assessed the risk of material misstatement as low. It involves directly contacting the recipients of accounts receivable to verify the information.

Since the population consists of a small number of large account balances and internal controls are effective, positive confirmation would provide the most reliable audit evidence.