Page 19 - eBook Audit Of Financial Statement Components

The audit clients should authorize their customers to disclose

details of outstanding balance to auditors. However, in the

event that the clients do not authorize auditors to get access to

their debtors, it can be considered as a limitation on the scope

There are two of audit, which in turn results in a modified auditor's report.

forms of

There are two forms of confirmation: positive and negative.
confirmation:
Positive confirmation requires debtors to confirm whether the
positive and
balance shown is correct or incorrect.
negative.

Negative confirmation requires debtors to respond only when
The results the amount stated in the confirmation is incorrect. Positive

from the confirmation is used when the detection risk is low and negative

investigation on confirmation is used when the detection risk is moderate or

high.
all exceptions

resulting from
Thus, positive confirmation generally produces statistically valid
debtors’
evidence compared with negative confirmation because a lack
confirmation
of response to negative confirmation may not signify that the
should be
debtors agree with the amount.
documented in

the working
The auditor must ensure that appropriate controls are in place
paper.
when using a confirmation request such as:

• Getting a complete and accurate list of debtors;
• Ascertaining that the amount, name and address are

accurate when preparing the confirmation;

• Ensuring that the confirmations are sent to debtors, and

to the auditor’s office.

12