Question

When control risk for the existence assertion is assessed at a high level, which of the following is a likely effect with respect to the auditors' confirmation of receivables?

Multiple Choice

1 The account balances as of year-end will generally be confirmed.

2 The auditors will in general use blank rather than positive confirmation requests.

3 The auditors will be required to confirm accounts as of an interim date (during the year under audit) and as of year-end.

4 Confirmation will not in general be used as the auditor will rely primarily upon support such as vendors' invoices, purchase orders and receiving reports.

Answer 1

OPTION 1) The account balances as of year-end will generally be confirmed.

When control risk for the existence assertion is assessed at a high level, the account balances as of year-end will generally be confirmed.

Since, when control risk is high, the risk of material misstatements is high, therefore auditor will set detecion risk as low in order to reduce audit risk at acceptable low level. Thereby, when control risk is high, a confirmation procedure scheduled on year end date with regard to account balances is necessary.