Audit Essay

398 Words2 Pages
7.63 L.King , CPA, is auditing the financial statement of cycle company, a client that has receivable from customers arising from the sale of goods in the normal course of business . King is aware that the confirmation of account receivable is a generally accepted auditing principle a. Under the circumstances could King justify omitting the confirmations of cycle’s account receivable. b. In designing the confirmation requests, what factors are likely to affect King’s assessment of reliability of confirmation that King send. c. What alternative procedures could king consider performing when replies to positive confirmation requests are not received? Answer: a. King can justify omitting the confirmation of Cycle’s account receivable when * Receivables are not material * Confirmation would be ineffective, based on prior years’ experience or knowledge that responses would be unreliable. * Analytical procedures and other substantive procedures provide sufficient, competent evidence. b. Factors that would affect King’s assessment of the reliability of confirmation that King sends- * Auditor’s previous experience with the client or similar client is going to affect reliability as the auditor will have previous knowledge of the expected confirmation, response rates, inaccurate information on prior year’s confirmation, and misstatement identified in the past. * The confirmation form –Two widely use confirmation forms are positive and negative confirmation forms. Positive forms ask customers to respond whether the balance is correct or not. A variation of positive form is blank form. This blank form ask the customer to fill in balance themselves and that is why it proves to be a better evidence as recipient have to fill in the balance from their own records. A negative form ask for a response only if something is wrong with the balance. *

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