An auditor is auditing the financial statements of a nonissuer. The auditor sends a confirmation request to a bank. The bank confirms the cash balance but does not answer the specific question regarding contingent liabilities (loans). What should the auditor do?

Answer options:

Rely on the cash confirmation as sufficient.

Perform alternative procedures or send a specific inquiry regarding the contingent liabilities.

Issue a qualified opinion due to scope limitation.

Assume there are no contingent liabilities since the bank did not list any.

How to approach this question

Bank Confirmations: They confirm Cash AND Loans. If they skip the Loans part, you don't have evidence for Loans. Ask again.

Full Answer

B.Perform alternative procedures or send a specific inquiry regarding the contingent liabilities.✓ Correct

The standard bank confirmation form requests information on both deposit balances and direct/contingent liabilities. If the bank fails to address the liability section, the auditor cannot assume no liabilities exist and must perform follow-up procedures.

Common mistakes

Assuming silence means 'None'.

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