ExpertMedium1 markMultiple Choice
CPA · Question 37 · Area III: Performing Procedures
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?
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:
A.
Send negative confirmations to all customers.
B.
Send positive confirmations to a large sample of customers.
C.
Rely solely on a review of subsequent cash receipts.
D.
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
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.
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