Quick Audit Question

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  • #200049
    Anonymous
    Inactive

    The composition of Oak and Company’s accounts receivable are as follows:

    Over $250,000 – 5 accounts

    Between $25,000 and $250,000 – 80 accounts

    Less than $25,000 – 200 accounts

    The best confirmation strategy for the auditor is:

    Answer: positive confirmations on a sample of all 285 accounts.

    I was looking at this question and wonder why we need to do the positive confirmation on sample of all 285 accounts.. does anyone see why? why not with a negative confirmation? and why for all accounts? which management assertion would you use in order for you to use this audit procedure? can anyone help me understand this better?

    Thanks!!

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  • #757917
    Biff-1955-Tannen
    Participant

    What question is this from? This seems like an incredibly vague question. It gives no background information about previous years confirmations being disregarded or anything about the level of inherent and control risk. So how they came to the conclusion that positive confirmations are superior to negative is beyond me.

    I do agree with the sampling of all accounts though. Since there a number of large accounts, PPS sampling would probably be good so that you make sure you're testing the bigger accounts. And what do you mean what assertions would you use? Do you mean what assertions are we testing? Mainly existence/occurrence.

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    #757918

    I have to point out that it isn't called a sample if you test everything.

    I've actually run into this with several auditors in my career. Many are overly cautious and end up “sampling” 80-90% of individual accounts. Very time consuming and in my opinion a poor way of auditing. Although if controls are nonexistent (especially in smaller companies), you have little choice other than to increase substantive testing.

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    #757919
    Biff-1955-Tannen
    Participant

    I think it was just saying the population of the sample was the 285 accounts, not actually testing 285

    AUD - 93
    BEC - 83
    FAR - 83
    REG - 84
    Nobody calls me chicken

    AUD 93 Jan 16
    BEC 83 Feb 16
    FAR 83 Apr 16
    REG 84 May 16

    99% Ninja MCQ only

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