Cooper, CPA is auditing the financial statements of a small rural municipality. The receivable balances represent residents' delinquent real estate taxes. Internal control at the municipality is weak. To determine the existence of the accounts receivable balances at the balance sheet date, Cooper would most likely
A) Send positive confirmation requests.
B) Send negative confirmation requests.
C) Examine evidence of subsequent cash receipts.
D) Inspect the internal records, such as copies of the tax invoices that were mailed to the residents.

Question

Quizplus · Accepted Answer

Since internal control is weak, positive confirmation requests are the most appropriate method for Cooper to use to obtain reliable evidence about the existence of the receivable balances. Positive confirmation requests require the person or organization being audited to respond directly back to the auditor and confirm or deny the details of the balances. This method provides the highest level of assurance that the balances exist as stated. Sending negative confirmation requests also provides evidence, but the risk of not receiving a response from the person or organization being audited is greater. Examining evidence of subsequent cash receipts and inspecting internal records are valid methods but do not provide as much assurance as the use of confirmation requests.

Cooper, CPA Is Auditing the Financial Statements of a Small