Question

Which accounts should be confirmed with outside sources? Briefly describe from whom they should be confirmed and the information that should be confirmed.

a) Accrued Liabilities - Confirmations should be obtained from creditors to verify the accuracy of outstanding obligations and terms of payment.
b) Property, Plant, and Equipment - Confirmations should be obtained from appraisers to verify the fair market value of tangible assets.
c) Notes Receivable - Confirmations should be obtained from borrowers, validating the accuracy of outstanding balances, terms, and the existence of any collateral.
d) Prepaid Expenses - Confirmations should be obtained from suppliers to verify the accuracy of prepaid expenses and terms of prepayment.

Answer 1

Accrued Liabilities and Notes Receivable are two accounts that should be confirmed with outside sources such as creditors and borrowers, respectively, to ensure the accuracy of financial statements. Property, Plant, and Equipment may be valued by appraisers, but traditionally aren't confirmed through external confirmations, while the checking of Prepaid Expenses typically involves reviewing contracts rather than obtaining direct confirmations.

Step-by-step explanation:

Accounts that should be confirmed with outside sources include:

• Accrued Liabilities - Confirmations should be obtained from creditors to verify the accuracy of outstanding obligations and terms of payment.
• Property, Plant, and Equipment - While not traditionally confirmed via external confirmation, the fair market value of such assets might be determined by appraisers in certain scenarios, especially for impairment testing or when a fair value measurement is necessary.
• Notes Receivable - Confirmations should be obtained from borrowers, validating the accuracy of outstanding balances, terms, and the existence of any collateral.
• Prepaid Expenses - These are not typically confirmed with outside parties directly, but the details of prepaid expenses agreements can be cross-verified with supplier contracts or other related documents.

These confirmations are important to verify financial information presented in the financial statements, serving as part of the audit procedures or financial due diligence.