Question

Smith is engaged in the audit of a cable TV firm that services a rural community. All receivable balances are small, customers are billed monthly, and internal control is effective. To determine the existence of the accounts receivable balances at the balance sheet date, Smith would most likely

a. Send positive confirmation requests.
b. Send negative confirmation requests.
c. Examine evidence of subsequent cash receipts instead of sending confirmation requests.
d. Use statistical sampling instead of sending confirmation requests.

Answer 1

In this scenario, sending positive confirmation requests would be the most appropriate method to determine the existence of accounts receivable balances.

Step-by-step explanation:

In this scenario, where all receivable balances are small, customers are billed monthly, and internal control is effective, the most appropriate method for Smith to determine the existence of accounts receivable balances at the balance sheet date would be to send positive confirmation requests. Positive confirmation requests are sent directly to customers asking them to confirm the amount of their outstanding balances. This method provides direct and reliable evidence of the existence of the accounts receivable balances.