Auditing standards define a confirmation as the “process of obtaining and evalua
ID: 2472978 • Letter: A
Question
Auditing standards define a confirmation as the “process of obtaining and evaluating a direct communication from a third party in response to a request for information about a particular item affecting financial statement assertions.” What are the two assertions for which confirmation of accounts receivable balances provides primary evidence. Select one of the below options and EXPLAIN your reasons why you selected that option. (a) Completeness and Valuation (b) Valuation and Rights and Obligations. (c) Rights and obligations and existence. (d) Existence and Completeness
Explanation / Answer
Auditing standards define a confirmation as the “process of obtaining and evaluating a direct communication from a third party in response to a request for information about a particular item affecting financial statement assertions.”
The two assertions for which confirmation of account receivable balances provides primary evidence is option C Rights and obligations and Existence.
For external confirmation is audit evidence obtained directly written response from other party. Their general requirements are. 1. Procedure wills not more effective, 2. Account balance will not materially proved, 3. Assertion level is very low and other planned procedures addresses risk.
External confirmation is more frequently relevant to assertions about balance of account. Balance of account includes allocation and valuation, completeness, existence, rights and obligations. Existence of Assertions shows whether assets, liabilities or equity interest of the entity. Rights and obligations shows whether liabilities are the obligations, entity holds any kinds rights into assets.
From above external confirmation shows relevant proof those receivables exist and which is the rights of client.
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