Audit Planning and Control

According to the text, to minimize the risk of material misstatement, auditors seek third- party verification of account balances by mailing customers their statements. Discuss the advantages of positive and negative confirmations, and ascertain whether or not email and oral confirmations are acceptable to increase customer response rates. Support your position.

A negative confirmation asks the customers to respond to the auditor only if they find a discrepancy between their records and the information about the client company's financial records that are supplied by the auditor. A positive confirmation asks the customer to send back a document, either confirming or disputing the account information sent to it by the auditor. Negative confirmation does not require follow up from the auditors when a response is not received. At the same time, negative response may not provide quality data since the customer sometimes do not respond because they may not have received the letter or they forgot to respond. Positive confirmation. Positive confirmation requires follow up and may takes multiple rounds for an auditor to get all the responses back. However, positive response gives the auditor “positive” comfort that all responses are received and evaluated for its audit evidence.

I believe email or oral confirmation are both acceptable because it does increase response rate. However, the auditor should take precaution to make sure the emailed party and phone/oral is the right person or contact. High technology created some risks for fraudulent emails but there are ways the auditor may obtain a reliable contact information for the person to confirm with.