What is an audit confirmation?

Asked By: Bradford Zerbib | Last Updated: 10th February, 2020
Category: business and finance debt factoring and invoice discounting
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Audit confirmation letter is a specific type of inquiry. It is the process of obtaining a representation of information or of an existing condition directly from a third party. Confirmations are also used to obtain audit evidence about the absence of certain conditions.

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Similarly one may ask, what is a positive confirmation?

Positive confirmation is an auditing inquiry that requires the customer to respond, confirming the accuracy of an item. Positive confirmation requires proof of accuracy by affirming that the original information was correct or by providing the correct information if incorrect.

One may also ask, are bank confirmations required for an audit? (1)For cash balances, there is no requirement shown in the auditing standards which means confirmation in audit of cash balances is not a must. But in fact, it is performed in most audits. (2)As for accounting receivables balances, it is required by the auditing standards to use confirmations.

Herein, what is confirmation of accounts receivable?

The accounts receivable confirmation. March 01, 2018. When an auditor is examining the accounting records of a client company, a primary technique for verifying the existence of accounts receivable is to confirm them with the company's customers. The auditor does so with an accounts receivable confirmation.

How do you respond to an audit letter?

When you disagree with the findings of an audit report or IRS notice, communicate your disagreement in writing. In case of an IRS notice, you should respond directly to the concerns the auditor listed in the notice. Write a letter and explain why you disagree along with documents to support your position.

39 Related Question Answers Found

What is the difference between a positive and negative confirmation?

A negative confirmation is a document issued by an auditor to the customers of a client company. A positive confirmation is one in which the customer is required to send back a document, either confirming or disputing the account information sent to it by the auditor.

What is a blank confirmation?

Term. blank confirmation form. Definition. a letter, addressed to the debtor, requesting the recipient to fill in the amount of the accounts receivable balance; it is considered positive confirmation.

What are substantive procedures?

Substantive Procedures Defined
A substantive procedure is a process, step, or test that creates conclusive evidence regarding the completeness, existence, disclosure, rights, or valuation (the five audit assertions) of assets and/or accounts on the financial statements.

What are the circumstances under which confirmation of accounts receivable is not required?

RECEIVABLE CONFIRMATIONS ARE NOT ALWAYS required if accounts receivable are immaterial, the use of confirmations would be ineffective or combined inherent risk and control risk are low and analytics or other substantive tests would detect misstatements.

What is negative affirmation?

Negative affirmation is the quality of negative thoughts that run in your mind in auto pilot mode. Once they become dominant, they starts affecting your mind, body and soul. They give you the feeling that you are not good enough. Your self confidence and self esteem goes down.

What is a bank confirmation request?

A bank confirmation letter (BCL) is a letter from a bank or financial institution confirming the existence of a loan or a line of credit that has been extended to a borrower.

What is the difference between a positive and a negative confirmation What are the advantages and disadvantages of each type?

Discuss the advantages and disadvantages of using negative accounts receivable confirmations rather than positive confirmations. The primary advantage of negative confirmations is that they are less expensive than positive confirmations because there are no second requests and no follow-up of nonresponses.

What is a negative consent letter?

Definition of the term Negative Consent Letter
a letter that authorizes a party to carry out a net transaction without obtaining permission before each transaction. It can only be used for institutional customers, and the letter must indicate the terms and conditions for handling orders.

Why is balance confirmation important?

Confirmation can be an effective tool for obtaining auditing evidence for some claims related to financial statements like existence claims if it is prepared and used properly. For instance, the evidences related to receivable accounts balances can provide us with convincing evidence about existence claims.

How do you test if an accounts receivable exists?

The most common audit procedure involving the accounts receivable balance is confirmation. To test that accounts receivable exist, the auditor will send letters to a sample of the client's customers asking to verify the amount that is owed to the company being audited.

What is external confirmation?

An external confirmation is audit evidence obtained as a direct written response to the auditor from a third party (the confirming party), in paper form, or through electronic or other medium. Requesting external confirmations is a commonly used audit procedure in an audit of financial statements.

What is a cash confirmation?

Confirmation, required by the City Code on Takeover and Mergers to be given in both the firm offer announcement and the offer document by a third party (generally the bidder's financial adviser) where the offer is for cash or includes an element of cash, that sufficient funding is in place for the bidder to satisfy in

How do you test subsequent receipts?

The concept behind the examination of subsequent cash receipts is that if the sale of the product or the rendering of the service happened before the balance-sheet date and the cash was received to pay the account after the balance-sheet date, then an open account receivable had to exist at the balance-sheet date.

What are the 5 audit assertions?

The 5 assertions are
  • Existence or occurrence.
  • Completeness.
  • Rights and obligations.
  • Valuation or Allocation.
  • Presentation and disclosure. Note that each line in the financial statements contains all assertions. However, the risk of misstatement for each assertion will vary according to the type of account.

What is the purpose of control accounts?

The purpose of the control account is to keep the general ledger nice and clean without any details, yet contain the correct balances to be used in the financial statements.

What does it mean to maintain control over the confirmation requests and responses?

5Maintaining control over the confirmation requests and responses means that the auditor must take precautions to reduce the opportunity for manipulation of the confirmation. Controls are insufficient when the client takes possession of the confirmation at any time.

What is the control account in a general ledger?

Definition: A control account, often called a controlling account, is a general ledger account that summarizes and combines all of the subsidiary accounts for a specific type. In other words, it's a summary account that equals the sum of the subsidiary account and is used to simplify and organize the general ledger.