Question

In the confirmation of accounts receivable, the auditor would most likely

a. Randomly select a representative sample of accounts for confirmation.
b. Seek to obtain positive confirmations for at least 50% of the total dollar amount of the receivables.
c. Require confirmation of all receivables from agencies of the federal government.
d. Require that confirmation requests be sent within one month of the fiscal year-end.

Answer 1

In the confirmation of accounts receivable, an auditor would most likely randomly select a representative sample of accounts for confirmation to ensure that the stated receivables are accurate and exist.

Step-by-step explanation:

In the confirmation of accounts receivable, the auditor would most likely randomly select a representative sample of accounts for confirmation. This process involves sending confirmation letters to the entities that owe money to the company being audited.

These confirmations can either be positive, where the respondent must reply whether they agree with the amount stated or not, or negative, where the respondent only replies if they disagree with the amount.

The auditor's goal is to verify that the accounts receivables recorded in the financial statements are accurate and exist. Therefore, they might choose amongst several strategies, like:

• Randomly selecting a sample that represents the entire population in terms of size, structure, and risk.
• Seeking to obtain a targeted percentage of confirmations based on the total dollar value, although not necessarily 50%.
• Requiring confirmation of receivables from specific entities, such as government agencies if they deem it significant or risk-prone.
• Sending confirmation requests near the fiscal year-end to ensure the information is relevant and timely.

However, the specific approach taken by the auditor can vary based on the audit's scope and objectives, the nature of the receivables, and the assessed level of risk.