![]() ![]() Also, the procedure would only detect one specific type of misstatement, that in which payments were recorded in the cash receipts journal, but not credited to the customers’ accounts. Answer (a) is incorrect because, a review of the cash receipts journal prior to year-end is unlikely to provide evidence on account recorded as unpaid as of year-end. Answer (d) is correct because the inspection of shipping records will provide evidence that the merchandise was actually shipped to the debtor. The requirement is to identify the most likely alternate procedure when replies have not been received to either first or second accounts receivable confirmation requests. Inspect the shipping records documenting the merchandise sold to the debtors. See AU-C 505 for information on the confirmation process. The fourth answer option is incorrect because a combined assessed level of inherent risk and control risk as low (i.e., the assessed risk of material misstatement) is a condition that affects the use of negative confirmations, not blank confirmations. The third answer option is incorrect because expecting few exceptions is a condition that affects the use of negative confirmations, not blank confirmations. It would simply make it more difficult to perform alternative procedures on nonresponding accounts. The second answer option is incorrect because the fact that subsequent cash receipts are difficult to verify doesn’t affect whether or not blank confirmations are used. Alternatively, the recipient may be more unwilling to sign and return a blank confirmation with no amount written and will therefor spend the time to look and enter the balance per the recipient’s records. The first answer option is correct because, if a recipient simply signs a blank confirmation and returns it, the confirmation will have no amount written on it, and the auditor will know that additional procedures are necessary. This answer is correct! The requirement is to identify the circumstance in which an auditor would use the blank form of confirmations (one which includes no amount and asks the respondent to supply the amount due) rather than positive confirmations. ![]() The recipients are likely to sign the confirmations without devoting proper attention to them. ![]()
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