Scenario: An auditor is auditing the financial statements of a nonissuer. The auditor has determined that the risk of material misstatement for the existence of accounts receivable is high. Which of the following confirmation strategies is MOST appropriate?

Answer options:

Send negative confirmations to all customers.

Send positive confirmations to a large sample of customers.

Rely solely on a review of subsequent cash receipts.

Send blank confirmations to a small sample of customers.

How to approach this question

High Risk = High Quality Evidence. Positive Confirmations > Negative Confirmations.

Full Answer

B.Send positive confirmations to a large sample of customers.✓ Correct

Send positive confirmations to a large sample of customers.

When RMM is high, the auditor needs more reliable evidence. Positive confirmations provide stronger evidence than negative confirmations. Negative confirmations are prohibited unless RMM is low and other conditions are met.

Common mistakes

Using negative confirmations when risk is high.

Question 36 All questions Question 38

Practice the full CPA AUD Practice Exam 3

78 questions · hints · full answers · grading

More questions from this exam

Q01A CPA firm is performing an audit of a nonissuer in accordance with GAO Government Auditing Stand...Hard Q02During the audit of an issuer, the engagement partner learns that the firm's tax partner, who pro...Hard Q03An auditor is planning an audit of a nonissuer's financial statements. The auditor decides to use...Medium Q04An auditor is assessing control risk for a nonissuer's revenue cycle. The auditor identifies that...Hard Q05During the audit of a manufacturing company's inventory, the auditor utilizes a variables samplin...Hard

View all 78 questions →