Asked by: Loree Novellas
business and finance debt factoring and invoice discounting

How do bank confirmations differ from positive confirmations of accounts receivable?

Last Updated: 29th June, 2021

39
Bank confirmations should be requested for all bank accounts, but positive confirmations of accounts receivable are normally requested only for a sample of accounts. If bank confirmations are not returned, they must be pursued until the auditor is satisfied as to what the requested information is.

Click to see full answer.

Also question is, what is an accounts receivable confirmation?

The accounts receivable confirmation. This is a letter signed by a company officer (but mailed by the auditor) to customers selected by the auditors from the company's accounts receivable aging report.

Similarly, how and why might auditors use of accounts payable confirmations differ from that of accounts receivable confirmations? The auditors rarely use the accounts payable confirmation rather than the accounts receivable confirmations. This is because the documents such as vendor invoices, monthly vendor statements, and payment reports that are re-examined are issued by the external parties.

Keeping this in consideration, what is the difference between negative and positive confirmations?

A negative confirmation is a document issued by an auditor to the customers of a client company. A positive confirmation is one in which the customer is required to send back a document, either confirming or disputing the account information sent to it by the auditor.

What are bank confirmations?

Bank confirmation is the audit procedure that perform by auditor to test the existence, accuracy and the ownership of banks account and bank balance of entity. This procedure is normally performed during the interim audit rather than at the completion stage.

Related Question Answers

Spyridon Zoboli

Professional

Why is balance confirmation important?

Confirmation can be an effective tool for obtaining auditing evidence for some claims related to financial statements like existence claims if it is prepared and used properly. For instance, the evidences related to receivable accounts balances can provide us with convincing evidence about existence claims.

Birute Cardero

Professional

What is a positive confirmation?

Positive confirmation is an auditing inquiry that requires the customer to respond, confirming the accuracy of an item. Positive confirmation requires proof of accuracy by affirming that the original information was correct or by providing the correct information if incorrect.

Violeta Bockenhold

Professional

How do you verify accounts receivable?

Here are some of the accounts receivable audit procedures that they may follow:
  1. Trace receivable report to general ledger.
  2. Calculate the receivable report total.
  3. Investigate reconciling items.
  4. Test invoices listed in receivable report.
  5. Match invoices to shipping log.
  6. Confirm accounts receivable.
  7. Review cash receipts.

Shamara Cereceda

Explainer

How do you test if an accounts receivable exists?

The most common audit procedure involving the accounts receivable balance is confirmation. To test that accounts receivable exist, the auditor will send letters to a sample of the client's customers asking to verify the amount that is owed to the company being audited.

Laetitia Moderegger

Explainer

What are the circumstances under which confirmation of accounts receivable is not required?

RECEIVABLE CONFIRMATIONS ARE NOT ALWAYS required if accounts receivable are immaterial, the use of confirmations would be ineffective or combined inherent risk and control risk are low and analytics or other substantive tests would detect misstatements.

Genna Caspart

Explainer

What are positive confirmations?

A positive confirmation is an inquiry made by an auditor to a third party that requires a response. A positive confirmation is considered to represent a higher quality of evidence than a negative confirmation, since the auditor receives explicit evidence from the third party.

Bennie Belmont

Pundit

What is the purpose of assigning accounts receivable?

The purpose of assigning accounts receivable is to provide collateral in order to obtain a loan. Assigning a specific account receivable usually results in recording the receivable in a separate general ledger account such as Accounts Receivable Assigned.

Predestina Valdespino

Pundit

How do you test subsequent receipts?

The concept behind the examination of subsequent cash receipts is that if the sale of the product or the rendering of the service happened before the balance-sheet date and the cash was received to pay the account after the balance-sheet date, then an open account receivable had to exist at the balance-sheet date.

Najla Stumpf

Pundit

What is a negative response?

a response, or lack of response which results in the avoidance from a stimulus. NEGATIVE RESPONSE: "A negative response is otherwise known as a lacking response."

Urbana Stockmanns

Pundit

Are bank confirmations required for an audit?

(1)For cash balances, there is no requirement shown in the auditing standards which means confirmation in audit of cash balances is not a must. But in fact, it is performed in most audits. (2)As for accounting receivables balances, it is required by the auditing standards to use confirmations.

Robertina Hormaegui

Pundit

What is an audit inquiry?

Inquiry. Inquiry consists of seeking information of knowledgeable persons, both financial and nonfinancial, inside or outside the entity. Inquiry is an audit procedure that is used extensively throughout the audit and often is complementary to performing other audit procedures.

Mauricia Markotegi

Teacher

What is a negative consent letter?

In a negative confirmation or negative consent communication situation, the company or entity sending the message only receives responses from "no" votes, as opposed to responses from everybody regardless of their opinion.

Andres Piotrowsk

Supporter

What is meant by alternative procedures in the confirmation of accounts receivable?

In the examination of accounts receivable, for example, alternative procedures may include examination of subsequent cash receipts (including matching such receipts with the actual items being paid), shipping documents, or other client documentation to provide evidence for the existence assertion.

Nilson Ghezzi

Supporter

When should negative confirmations be used?

A negative confirmation is a document issued by an auditor to the customers of a client company. The letter 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.

Primiano Mitchell

Supporter

What are the common substantive audit tests accounts receivable?

As indicated by the examples, substantive testing is likely to include confirmation of account balances with third parties (such as confirming receivables), recalculating calculations made by the client (such as valuing inventory), and observing transactions being performed (such as the physical inventory count).

Calista Ribeiro

Beginner

Which alternative procedures are the most reliable Why?

The examination of evidence of subsequent cash receipts is usually the most useful alternative procedure because it is reasonable to assume that a customer would not make a payment unless it was a valid receivable.

Mireille Grooters

Beginner

What is confirmation of accounts receivable?

The accounts receivable confirmation. March 01, 2018. When an auditor is examining the accounting records of a client company, a primary technique for verifying the existence of accounts receivable is to confirm them with the company's customers. The auditor does so with an accounts receivable confirmation.

Baraa Volpert

Beginner

How do you test the completeness of accounts receivable?

Accounts receivable auditing
  1. Trace receivable report to general ledger.
  2. Calculate the receivable report total.
  3. Investigate reconciling items.
  4. Test invoices listed in receivable report.
  5. Match invoices to shipping log.
  6. Confirm accounts receivable.
  7. Review cash receipts.
  8. Assess the allowance for doubtful accounts.