EBK AUDITING & ASSURANCE SERVICES: A SY
10th Edition
ISBN: 9781259293245
Author: Jr
Publisher: MCGRAW HILL BOOK COMPANY
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Question
Chapter 10, Problem 10.20MCQ
To determine
Concept Introduction:
External confirmation is kind of audit evidence. This is obtained by the auditors from third party to confirm the balances or transactions. An external confirmation can be either positive or negative confirmation.
To choose: the reason why a negative conformation is less effective that the positive confirmation.
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When making a decision about the dollar amount in an account balance based on a sample, the audit team considers the risk of incorrect acceptance to be more serious than the risk of incorrect rejection becausea. The incorrect rejection decision impairs the efficiency of the audit.b. The audit team will do additional work and discover the misstatement of the incorrect decision.c. The incorrect acceptance decision impairs the effectiveness of the audit.d. Sufficient appropriate audit evidence will not have been obtained.
Read the case. Then answer the questions based on it.
BACKGROUND:
Audit standards indicate that there is a presumption that auditors will confirm accounts receivable unless the balance is immaterial, confirmations are deemed ineffective, or the auditors' assessment of risk is low and other procedures will achieve the same objective. However, these instances are considered few and far between and current trends in auditing indicate that there is an expectation that accounts receivable will be confirmed. Auditors may stratify the population, use haphazard or judgmental sampling, and send positive or negative requests.
Jenner & Jenner CPAs are the auditors for the Leno Company. In reviewing the accounts receivable aging, the auditors learn that there is a high number of accounts with balances, there are some very large and very small balances, and many customers' balances consist of multiple invoices.
2. How should the auditors mitigate the risk associated with both very large and…
Chapter 10 Solutions
EBK AUDITING & ASSURANCE SERVICES: A SY
Ch. 10 - Prob. 10.1RQCh. 10 - Prob. 10.2RQCh. 10 - Prob. 10.3RQCh. 10 - Prob. 10.4RQCh. 10 - Prob. 10.5RQCh. 10 - Prob. 10.6RQCh. 10 - Prob. 10.7RQCh. 10 - Prob. 10.8RQCh. 10 - Prob. 10.9RQCh. 10 - Prob. 10.10RQ
Ch. 10 - Prob. 10.11RQCh. 10 - Prob. 10.12MCQCh. 10 - Prob. 10.13MCQCh. 10 - Prob. 10.14MCQCh. 10 - Prob. 10.15MCQCh. 10 - Prob. 10.16MCQCh. 10 - Prob. 10.17MCQCh. 10 - Prob. 10.18MCQCh. 10 - Prob. 10.19MCQCh. 10 - Prob. 10.20MCQCh. 10 - Prob. 10.21MCQCh. 10 - Prob. 10.22MCQCh. 10 - Prob. 10.23MCQCh. 10 - Prob. 10.24PCh. 10 - Prob. 10.25PCh. 10 - Prob. 10.26PCh. 10 - Prob. 10.27PCh. 10 - Prob. 10.28PCh. 10 - Prob. 10.29PCh. 10 - Prob. 10.30P
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Similar questions
- True or False Accounts receivable confirmations are likely to be more effective for the existence assertion than for the completeness and valuation assertions. The auditor should exercise an appropriate level of professional skepticism throughout the confirmation process. Negative confirmation forms provide audit evidence only when responses are received from the recipients; nonresponses do not provide audit evidence about the financial statement assertions being addressed. The positive confirmation form requests the recipient to respond only if he or she disagrees with the information stated on the request. During the performance of confirmation procedures, the auditor should maintain control over the confirmation requests and responses.arrow_forwardSome account balances such as those for pensions and leases are the result of complex calculations. The susceptibility to material misstatements in these types of accounts is defined as a. Sampling risk b. Detection risk c. Inherent risk. d. audit riskarrow_forwardi need the answer quicklyarrow_forward
- Physical examination is usually more costly than observation. True False Analytical procedures are usually the most costly type of evidence. True False Physical examination is normally more reliable than observation. True False Inquiries of the client are rarely sufficient by themselves to provide competent evidence to satisfy an audit objective. True False A canceled check written by the client, made payable to a local vendor, and drawn on the client’s bank account is one type of internal document. True Falsearrow_forwardNonearrow_forwardIn deciding upon the acceptable risk of incorrect acceptance for an account, an auditor considers each of the following except a. Audit risk. b.Tolerable error. c.The risk that internal controls fail to detect material misstatements that have occurred. d. The risk that analytical procedures and other tests fail to detect material errors that occur and that are not detected by internal control.arrow_forward
- What is tolerable misstatement? How do auditors use it when deciding whether account balancesare fairly recorded?arrow_forwardExplain why the analysis of differences is important in the confirmation of accounts receivable, even if the misstatements in the sample are not material.arrow_forward3. An auditor should perform alternative procedures to substantiate the existence of accounts receivable when a. Pledging of the receivables is probable b. No reply to a negative confirmation request is received c. No reply to a positive confirmation request is received d. Collectibility of the receivable sis in doubtarrow_forward
- Which of the following statements about confirming accounts receivable (A/R) and accounts payable (A/P) is true? Question options: A/R confirmations are more likely to include the client's balance than A/P confirmations. A/R and A/P are always confirmed regardless of the materiality of the balance or risks of material misstatement. The assertion with the highest risk of material misstatement for A/R and A/P is Existence. Positive and negative confirmations are always used to audit A/R and A/P.arrow_forwardIf the auditor concludes that there is a high likelihood of material misstatement in accounts receivable due to changing economic conditions, the auditor concludes that inherent risk for accounts receivab is low. Select one: OTrue O False earrow_forwardWhen an audit team does not receive a response on a positive accounts receivable confirmation, auditors should do all of the following excepta. Send a second request.b. Do nothing for immaterial balances.c. Examine shipping documents.d. Examine client correspondence files.arrow_forward
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