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ACCA Strategic Professional · Advanced Audit and Assurance (International) · Audit procedures and obtaining evidence

Kestrel Ltd, an audit client, has a trade receivables balance of $4.2m. The audit senior of Marlowe & Co proposes sending positive confirmation requests to a sample of customers. Which of the following best describes a positive external confirmation request under ISA 505?

A positive confirmation request asks the third party to respond directly to the auditor, stating whether it agrees with the information given or supplying the information requested. A negative request only requires a reply if there is disagreement, and the auditor must control the process.

  1. AA request asking the customer to reply only if it disagrees with the balance stated
  2. BA request asking the customer to reply directly to the auditor indicating whether it agrees or disagrees with the information, or to provide the information requestedCorrect
  3. CA request sent by the client's finance director asking customers to return signed statements to the client
  4. DA request which states the balance and is followed up only by alternative procedures if no reply is received within a week

Explanation

ISA 505 defines a positive confirmation request as one asking the respondent to reply directly to the auditor indicating whether it agrees with the information stated, or to provide the information requested. Option A describes a negative confirmation. Option C fails because the auditor must maintain control over the request and response, so replies cannot go via the client.

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