Question

Auditors may use positive and/or negative forms of confirmation requests for accounts receivable. Which of the following statements is true regarding the auditor's use of confirmations?

a. The positive confirmation form must always be used to confirm all balances regardless of size.
b. A combination of the two confirmation types can be used, with the positive form used for large balances and the negative form used for small balances.
c. A combination of the two confirmation types can be used, with the positive form used for trade receivables and the negative form for other receivables.
d. The positive confirmation form should be used when controls related to receivables are satisfactory and the negative confirmation form should be used when controls related to receivables are unsatisfactory.

Answer 1

The correct statement regarding the auditor's use of confirmations is d. The positive confirmation form should be used when controls related to receivables are satisfactory and the negative confirmation form should be used when controls related to receivables are unsatisfactory.

Step-by-step explanation:

The correct statement regarding the auditor's use of confirmations is d. The positive confirmation form should be used when controls related to receivables are satisfactory and the negative confirmation form should be used when controls related to receivables are unsatisfactory.

Positive confirmation requests involve sending a request to the debtor to confirm the accuracy of the balance owed. This form is typically used when the controls related to receivables are considered effective.

Negative confirmation requests, on the other hand, involve asking the debtor to respond only if they disagree with the balance stated. This form is usually used when the controls related to receivables are deemed ineffective.