Question

Negative confirmation of accounts receivable is less effective than positive confirmation because:a. Some recipients may report incorrect balances.b. There is no way of knowing whether a non-response indicates agreement with the balance or a failure by the customer to return the form.c. The amount of the receivable may be immaterial.d. Only blank confirmations are permitted under GAAS for material accounts receivable balances.

Answer 1

The answer is option C) Negative confirmation of accounts receivable is less effective than positive confirmation because the amount of the receivable may be immaterial

Step-by-step explanation:

Negative confirmation of accounts is typically used when the accounting controls of a company have historically had very few errors and are thus considered to be strong. The company is asked to double-check the numbers and only confirm if there is a discrepancy.

Negative confirmation of accounts receivable is less effective than positive confirmation because if accounts receivable are immaterial, the use of confirmations would be ineffective since combined inherent risk and control risk are low.

Analytics or other substantive tests would detect any discrepancies or misstatements.