Which type of accounts receivable confirmation would normally be considered more reliable?

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Several procedures are used by auditors to verify the dollar amounts included in your financial statements: original source documents, comparing financial trends from prior years, and often reach out to third parties — such as customers and lenders — to verify that unpaid balances and business estimates agree with company records. We’ve outlined some details about the confirmation process below: 

Audit confirmations are used when:

Third-party confirmations received directly by the auditor from external sources are considered more reliable than evidence generated in-house by your company. Auditors often send paper or electronic requests to customers to verify accounts receivable and to other financial institutions to confirm outstanding promissory notes. They also may choose to investigate cash transactions, inventory records, and consigned merchandise as well as long-term contracts, accounts payable and contingent liabilities, and any unusual transactions.

Before finishing audit procedures, a letter is sent to your attorney, confirming whether the information provided about any pending legal actions are both accurate and complete. Your attorney’s response will determine whether any pending litigation will have a material impact on the company’s financial statements.

A few types of confirmations:

Different types of audit confirmations exist for the varied nature of financial situations and the nature of your company’s operations. There are three basic types of confirmations:

  1. Positive. This confirmation format asks recipients to reply directly to the auditor and to clarify with a positive statement regardless of whether they agree or disagree with the financial information included.
  2. Negative. This type asks recipients to reply directly to the auditor only if they disagree with the information presented on the confirmation.
  3. Blank. This type doesn’t state the amount or any other specific details on the request itself. Instead, recipients are asked to complete the form and return it directly to the auditor.

Some banks and financial institutions have chosen to no longer respond to confirmation letters mailed through the USPS. Instead, they respond only to electronic requests. These email requests may be made directly to the respondent or sent through a third-party provider.

Can you do something to assist?

The answer is yes! Approving the auditor’s requests in a quick, efficient manner can speed up the confirmation process. However, there may be situations when you object to the use of confirmation procedures. If this happens, discuss the matter with and provide corroborating evidence to your auditor. If your auditor feels the reason for the refusal is valid, they will apply alternative procedures and possibly ask for exclusive representation with management regarding the reasons for not confirming.

Auditors also might include your staff during the confirmation process. They may ask about recipients who aren’t responding to requests or other discrepancies found during the confirmation process. Your staff can help the audit team determine whether a misstatement in responses has occurred — and adjust the financial reports accordingly.

Audit confirmations can be a powerful tool.

Confirmations can both the quality and efficiency of the audit. JLK Rosenberger works with our clients to ensure the confirmation process goes smoothly. If the experience with your auditor has not been smooth, please call us at 818-334-8645 or click here to contact us. We’d be happy to discuss how our audit process can alleviate some of the burden placed on you and your staff.

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What type of evidence is generally considered the most reliable?

Evidence provided by original documents is more reliable than evidence provided by photocopies or facsimiles, or documents that have been filmed, digitized, or otherwise converted into electronic form, the reliability of which depends on the controls over the conversion and maintenance of those documents.

What is positive confirmation of accounts receivable?

Positive confirmation requires proof of accuracy by affirming that the original information was correct or by providing the correct information if incorrect. Positive confirmations are used to verify the amounts of liabilities, investments, bank accounts, accounts receivables, and payables.

Which type of evidence is considered more reliable and relevant by the auditor?

Audit evidence obtained directly by the auditor (for example, observation of the application of a control) is more reliable than audit evidence obtained indirectly or by inference (for example, inquiry about the application of a control).

What are the two types of confirmation requests?

There are two types of confirmations: A positive confirmation requests that the recipient complete a form confirming account balances (for example, how much a customer owes the company). A negative confirmation requests that the recipient respond only if the balance is inaccurate. 2.