ase 9.4 Bud’s Big Blue Manufacturing covers accounts receivable confirmations

REQUIRED

[1] List the four factors auditors should consider when evaluating the results of confirmation procedures. Also, what are three of the characteristics of a reliable confirmation? (For this and other questions, you may wish to refer relevant auditing standards).

[2] What does it mean to “maintain control” over the confirmation requests and responses? What could go wrong if the auditor doesn’t maintain control over the confirmation process?

[3] Complete the audit log provided on the next page for each of the seven remaining confirmations. Consider whether each confirmation provides sufficient, appropriate audit evidence, whether sufficient alternative procedures have been performed for non-responses, and whether additional procedures should be performed before concluding that the confirmation provides evidence supporting the client’s account balance. Be as precise and concise as possible.

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

[5] Search the internet to identify a real-life situation where an auditor apparently did not maintain sufficient control over the confirmation process. Briefly describe the situation you found.

PROFESSIONAL JUDGMENT QUESTION

It is recommended that you read the Professional Judgment Introduction found at the beginning of this book prior to responding to the following question.

[6] After completing the confirmations review, your senior asks you to assess the reasonableness of the allowance for bad debts. Think about the anchoring tendency discussed in the Professional Judgment Introduction. How could the anchoring tendency bias your reasonableness assessment? What are some ways that you could mitigate the possible effects of the anchoring tendency in assessing the reasonableness of the allowance?

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