Chapter : Revenue and Collection Cycle (Auditing - Accounting) Under what circum
ID: 2453727 • Letter: C
Question
Chapter : Revenue and Collection Cycle (Auditing - Accounting)
Under what circumstances would a positive confirmation of accounts receivable be preferable to a negative confirmation? What procedures should an auditor perform for a positive confirmation that is not returned by the client's customer? Is the confirmation of cash and accounts receivable required according to auditing standards? Explain. Discuss some of the inherent risks in the revenue and collection cycle. What are the major steps you would take in auditing accounts receivable?Explanation / Answer
1. Positive confirmation is an enquiry by the auditor which requires the customer to verify whether records as per customers corresponds with the auditor's record or does not correspond.
Negative confirmation is the case when response from the customer is required only in cases of any discrepancy.
Positive confirmation will be preferable to a negative confirmation in cases when the books of the firm is suspected to have errors. In such cases positive confirmation will be used as it is a high quality evidence being provided directly from the customers. In case of any discrepency between the report provided by the customer and the auditor's report, then the auditor will ask the company to reconcile the difference.