Question

In auditing accounts receivable, the negative form of confirmation request most likely would be used when

a.The total recorded amount of accounts receivable is immaterial to the financial statements taken as a whole.
b.Response rates in prior years to properly designed positive confirmation requests were inadequate.
c.Recipients are likely to return positive confirmation requests without verifying the accuracy of the information.
d.The combined assessed level of inherent risk and control risk relative to accounts receivable is low.

Answer 1

The negative form of confirmation request in auditing accounts receivable is most likely to be used when the combined assessed level of inherent risk and control risk relative to accounts receivable is low.

Step-by-step explanation:

In the context of auditing accounts receivable, the negative form of confirmation request is a method used by auditors when there is a low risk associated with accounts receivable. Specifically, this form of confirmation is most likely to be used when the combined assessed level of inherent risk and control risk relative to accounts receivable is low.

It means that based on the auditor's assessment, the entity's internal controls are strong, and the likelihood of material misstatement due to error or fraud is low. Therefore, it is less important to obtain direct confirmations, and a negative confirmation, which only requires a response if the recipient disagrees with the stated amount, is considered adequate.