Beruflich Dokumente
Kultur Dokumente
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REQUIRED
1. List the four factors auditors should consider when evaluating the results of
confirmation procedures. Also, what are three of the characteristics of a reliable
confirmation?
2. What does it mean to “maintain control” over the confirmation requests and
responses? What could go wrong if the auditor doesn’t maintain control over the
confirmation process?
3. Complete the audit log provided on the next page for each of the seven remaining
confirmations. Consider whether each confirmation provides sufficient,
appropriate audit evidence, whether sufficient alternative procedures have been
performed for non-responses, and whether additional procedures should be
performed before concluding that the confirmation provides evidence supporting
the client’s account balance. Be as precise and concise as possible.
4. What is the difference between a positive and a negative confirmation? What are
the advantages and disadvantages of each type?
5. Search the internet to identify a real-life situation where an auditor apparently did
not maintain sufficient control over the confirmation process. Briefly describe the
situation you found.
6. After completing the confirmations review, your senior asks you to assess the
reasonableness of the allowance for bad debts. Think about the anchoring
tendency discussed in the Professional Judgment Introduction. How could the
anchoring tendency bias your reasonableness assessment? What are some ways
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that you could mitigate the possible effects of the anchoring tendency in assessing
the reasonableness of the allowance?
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ANSWER
1) The auditor should consider the reliability of the confirmations and alternative
procedures; nature and implications of any exceptions; evidence provided by
other procedures; and Whether additional evidence is needed. The factors that
will affecting the reliability of confirmations are to think, the positive or negative
form, the confirmation a blank confirmation, the third-party knowledgeable about
the information being confirmed, the third-party independent, objective, and free
from bias, Does the response provide meaningful and competent evidence.
2) Based on AU-C 505 the auditor should maintain control over external
confirmation requests, including : Determining the information to be confirmed
or requested. Selecting the appropriate confirming party. Designing the
confirmation requests, including determining that requests are properly directed
to the appropriate confirming party and provide for being responded to directly to
the auditor. Sending the requests, including follow-up requests, when applicable,
to the confirming party. Therefore, maintaining control over the confirmation
requests and responses means that the auditor must take precautions to reduce
the opportunity for manipulation of the confirmation. If the client takes
possession of the confirmations at any time, control has been insufficient.
Another example of insufficient control might be a response received in a form
other than the return of the original confirmation letter, such as a fax or email,
which may not provide sufficient audit evidence to achieve the objectives of the
confirmation process (see AU 330, paragraphs .28 and .29). At a minimum, an
auditor would generally verify the source of the fax or email through a telephone
call. The auditor may also request that the customer return the original
confirmation (Based on Interpretation of AU 330, The Confirmation Process). In
the event that the auditor does not maintain sufficient control over the
confirmation requests and responses, bias could be introduced into the
confirmation process. For example, it is possible that the client could alter the
confirmation letters or responses in order to perpetrate a fraud. In another word, if
the auditor does not maintain the direct control, the client may manipulate the
confirmation letter so as to make it consistent with its records.
3) The confirmations do not all currently provide sufficient and appropriate audit
evidence. Upon reviewing the confirmations, the students should conclude that
additional work needs to be done before concluding that they have sufficient and
appropriate audit evidence. The table on the following page will show a summary
of suggested alternative procedures.
a. Confirmation 71 appears to indicate a timing difference. Timing
differences are fairly common occurrences when confirming accounts
receivable and typically do not indicate an audit difference. However, the
auditor should obtain evidence indicating that the client actually received
the payment from Private Planes Plus. Such evidence could easily be
obtained by examining the client’s cash receipts journal and, if desired,
tracing the relevant cash deposit to bank deposit records.
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b. We should also take a note that Confirmation 72 was faxed. Although
“Properly controlled electronic confirmations may be considered to be
reliable audit evidence (Interpretation of AU 330, paragraph .02)”, it is
difficult to confirm the source of the electronic transmission, and
manipulation of the confirmation is possible. The auditor would normally
call the customer to obtain verbal confirmation and also request that the
customer mail the original (Interpretation of AU 330, paragraph .01).
d. Confirmation 74 raises two issues. First, the original confirmation was not
returned. Rather, the customer emailed the audit senior. As with the faxed
response, electronic confirmations may provide reliable evidence if
proper control is established (Based on Interpretation of AU 330), though
it is more difficult to verify the source and maintain control. A second
concern is that the customer failed to identify the amount of the balance.
The auditor would normally call the customer to obtain verbal
confirmation and also request that the customer mail the original.
4)
Difference :
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b. A negative confirmation is also addressed to the debtor but requests a
response only when the debtor disagrees with the stated amount.
5) The anchoring tendency is the tendency to start at a base amount and make
adjustments away from that amount that are unreasonably low. The anchoring
tendency could bias a reasonable assessment in the same way any tendency could
bias the assessment. Tendencies arise in the same manner as writer’s block. Once
you see things written a certain your brain wants to take that information to be
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accurate and it is often hard to go against what you have already seen. It happens
the ability to make individual decisions in a group. There are the same tendencies
that make it difficult to steer away from what the majority is thinking. It is
important to review the final decision and as well as the rationale behind the
decision. It’s also a good idea to review all pertinent information and decide on
the allowance prior to what has already been provided.