Question

The auditor should ordinarily mail confirmation requests to all banks with which the client has conducted any business during the year, regardless of the year-end balance, since

A. The confirmation form also seeks information about indebtedness to the bank
B. This procedure will detect kiting activities which would otherwise not be detected
C. The mailing of confirmation forms to all such banks is required by generally accepted auditing standards
D. This procedure relieves the auditor of any responsibility with respect to nondetection of forged checks

Answer 1

The primary reason auditors mail confirmation requests to all banks is to obtain information about indebtedness, which is in accordance with auditing standards but does not exempt them from responsibility for nondetection of forged checks.

Step-by-step explanation:

The auditor should ordinarily mail confirmation requests to all banks with which the client has conducted any business during the year, regardless of the year-end balance.

While this may include gathering information about indebtedness to the bank and potentially detecting kiting activities, the primary reason is that the confirmation form also seeks information about indebtedness to the bank. This practice is in line with generally accepted auditing standards and provides the auditor with a comprehensive understanding of the client's financial relationships with banking institutions.

However, it's important to note that this procedure does not relieve the auditor of any responsibility with respect to the nondetection of forged checks. In light of past financial shakiness of banks, particularly during the 2008-2009 recession, bank supervision and the thorough auditing of financial statements have been in sharp focus to ensure financial stability and transparency.