External confirmations

External Confirmation is part of which step of audit?

• Understanding the entity and its environment
• Substantive Analytical Procedures
• Test of Details
• Test of Controls

When management refuses to allow the auditor to send a confirmation request?

• A. Enquire the management’s reasons for refusal
• B. Perform alternate audit procedures
• C.      A & B
• D. None

Which of the following statements is/are true? 1. A positive confirmation request for trade receivables asks respondents to reply to the auditor indicating whether they agree with the information provided 2. A negative confirmation request is a professional way for the auditor to ask for a response only if there is a problem

• A. 1 only
• B. 2 only
• C. Both 1 and 2
• D. Neither 1 nor 2

How would an auditor trace transactions if the objective of the auditor's tests of details is to detect possible understatement of sales?

• From purchase order to shipping documents
• From cash receipts to sales invoices
• From purchase order to cash receipts
• From shipping documents to sales invoices

In which of the following circumstances would a negative form of external confirmation request be inappropriate?

• When internal controls are strong
• When the population consists of a large number of small accounts
• When errors are not expected
• When it is expected that respondents will ignore requests

An audit program for trade receivables includes the following procedure: "Obtain the list of individual customers and agree the total to the trade receivables account." What assertion does this test?

• Completeness
• Valuation
• Rights
• Existence

Which of the following would NOT explain why a customer confirms a balance that is less than the account receivable balance?

• Good were dispatched shorty before the year end
• A credit note was raised shortly before the year end
• Payment was sent shortly before the year end
• A misappropriation of cash

What is not a control to be maintained by the auditor over confirmation requests?

• Selecting the appropriate confirmation party
• Designing external confirmation requests
• Using management’s email to send requests
• Sending requests, including follow-up requests when appropriate

How are positive confirmations different from negative confirmations?

• In positive confirmations, the third party is requested to reply whether they agree or disagree
• In negative confirmations, the third party is requested to reply whether they agree or disagree
• In positive confirmations, the third party is requested to reply only if they disagree
• A and C

The various requirements in relation to the results of the external confirmation procedures include which of the following?

• When doubts over reliability of response, obtain further audit procedures
• For non-response, perform alternative audit procedures
• Both A & B
• None of the above