Which of the following scenario would negative confirmation be inappropriate?Select one:a.the receivable comprises a large number of small, homogeneous account balances.b.very few or no exceptions expectedc.the auditor has a reason to believe that recipients of negative confirmation requests will disregard such confirmation requestsd.the assessed level of inherent and control risk for receivable and sales is very low
Question
Which of the following scenario would negative confirmation be inappropriate?Select one:a.the receivable comprises a large number of small, homogeneous account balances.b.very few or no exceptions expectedc.the auditor has a reason to believe that recipients of negative confirmation requests will disregard such confirmation requestsd.the assessed level of inherent and control risk for receivable and sales is very low
Solution
To determine which scenario would make negative confirmation inappropriate, let's analyze each option step by step:
a. The receivable comprises a large number of small, homogeneous account balances.
- Negative confirmation can be appropriate in this scenario because it is efficient for verifying many small, similar balances.
b. Very few or no exceptions expected.
- Negative confirmation can be appropriate here as well, since it is useful when the auditor expects minimal discrepancies.
c. The auditor has a reason to believe that recipients of negative confirmation requests will disregard such confirmation requests.
- Negative confirmation would be inappropriate in this scenario because if recipients are likely to ignore the requests, the auditor cannot rely on the responses (or lack thereof) to gather sufficient audit evidence.
d. The assessed level of inherent and control risk for receivable and sales is very low.
- Negative confirmation can be appropriate in this scenario because low risk suggests that the auditor can rely on the absence of responses as evidence.
Based on the analysis, the correct answer is: c. The auditor has a reason to believe that recipients of negative confirmation requests will disregard such confirmation requests.
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