What should the audit team do if a customer does not respond to a confirmation?
If the audit team doesn’t receive a response on confirmations that were sent, the first step would be to send a second or third confirmation request. If the customer still doesn’t respond, the audit team will be forced to perform alternative procedures, like liquidating the receivable.
To liquidate the receivable, the audit team would see if the customer paid their outstanding balance in the first few months of the following year. If the customer paid the receivable, that more or less confirms that it was a valid receivable at year-end.
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Is the audit team required to send accounts receivable confirmations?
Yes, for most firms, the audit team is required send confirmations to customers to confirm their outstanding balance at year-end. If the audit team determines that sending confirmations is a waste of time, they can perform alternative procedures, but that typically results in extensive documentation. The primary reason is to test the existence & occurrence...
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Can confirmations test the rights & obligation assertion for accounts receivable?
Yes, both bank confirmations and debt confirmations can be used to understand if there are any liens on receivables. The audit team should also review board meeting minutes to understand if the company has entered into any agreements to factor or pledge their receivables to a 3rd party.
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Why would you send confirmations to customers?
An audit team would send confirmations to customers to test the existence/occurrence assertion and the accuracy/valuation assertion. There are different types of confirmations, but generally this helps the audit team confirm that the transaction is not fictitious and that the transactions is recorded at the correct amount. For example, an audit team might send confirmations...
Is the audit team required to send accounts receivable confirmations?
Yes, for most firms, the audit team is required send confirmations to customers to confirm their outstanding balance at year-end. If the audit team determines that sending confirmations is a waste of time, they can perform alternative procedures, but that typically results in extensive documentation. The primary reason is to test the existence & occurrence...
Can confirmations test the rights & obligation assertion for accounts receivable?
Yes, both bank confirmations and debt confirmations can be used to understand if there are any liens on receivables. The audit team should also review board meeting minutes to understand if the company has entered into any agreements to factor or pledge their receivables to a 3rd party.
Why would you send confirmations to customers?
An audit team would send confirmations to customers to test the existence/occurrence assertion and the accuracy/valuation assertion. There are different types of confirmations, but generally this helps the audit team confirm that the transaction is not fictitious and that the transactions is recorded at the correct amount. For example, an audit team might send confirmations...
