AUDITING II HANDOUT PROBLEM 7 Score Name Section Essay Question (10 points) As p
ID: 2342418 • Letter: A
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AUDITING II HANDOUT PROBLEM 7 Score Name Section Essay Question (10 points) As part of the June 30, 20X2 audit of accounts payable of their client, an auditor sent 22 confirmations of accounts payable to vendors in the form of requests for statements. Four of the statements were not returned by the vendors, and five vendors reported balances different from the amounts recorded in the client's accounts payable master file. The auditor made duplicate copies of the five vendors' statements to maintain control of the independent information and turned the originals over to the client's accounts payable clerk to reconcile the differences. Two days later, the clerk returned the five statements to the auditor with the information on the audit schedule attached. REQUIRED: () Is it acceptable for the auditor to have the client perform the reconciliations (2) Describe the additional tests that should be performed for each of the five 3 What audit procedures should be performed for the confirmation requests that on the five vendors' statements? Provide an explanation for your answer. statements that included differences. were not responded to?Explanation / Answer
(1) The Statement on Auditing Standards (SAS) No 67, titled 'The Confirmation Process,' was released to provide additional guidelines for auditors involved in confirmation activities. The auditor can tell client to perform any reconciliations for any differences in balances.
The auditor may have experience with confirmations, perhaps with the specific client or with clients in the same industry. Knowledge gained from that experience may include information on response rates, errors reported previously, or inaccurate responses. If response rates were poor or if inaccurate responses are common, the auditor may consider obtaining evidence by a method other than confirmations. If the respondents previously reported errors, the auditor may choose to increase the number of confirmations sent in hopes of locating even more misstatements.
(2) Auditor can obtain reason
To confirm accounts Payables, the client needs to reconcile the accounts paybles subsidiary ledger to all the vendors that are owed by the company money to the total amount shown on the balance sheet. As an auditor our job is to make sure of three things:
The transactions represented in accounts payable are valid, authentic obligations of third parties.
The vendor balance is correct.
All uncollectible accounts have been properly written off.
All payments included are properly stated
(3) Accounts payable confirmations are generally used less frequently by auditors than accounts receivable confirmations because the auditor can test accounts payable by examining vendor invoices and monthly vendor statements. Since these documents originate from sources external to the client, this evidence is viewed as reliable. Accounts payable confirmations primarily provide evidence on the completeness assertion. When confirming accounts payable, auditors generally use a form of positive confirmation referred to as a ‘blank or zero-balance’ confirmation.
This type of positive confirmation does not state the balance owed. Instead, the confirmation requests that the recipient fill in the amount or furnish other information.
accounts payable confirmations are generally mailed at year end rather than at an interim date because of the auditor's concerns about unrecorded liabilities.
*Secure electronic confirmation solutions provide the following core capabilities:
Multiple layers of authentication and security to validate the authenticity of responders;
Web-based interface for performing audit confirmations; and
A record of activity on every confirmation that provides a traceable path of accountability to each individual involved can be in the confirmation process.
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