age 1 Question 2 (13 points) Confirmations 1 Da Silva Corporation Page 2: 2 You are the audit manager for the audit of Da Silva Corporation. You are discussing the potential use of Confirmations to assist in the evaluation of the existence and valuation of Da Silva's Account Receivable balance from its customers. You would use these Confirmations in a sampling to make a judgment about the entire population of Accounts Receivable, Page 3: Raja Ramachandran, CPA, suggests using Positive (Regular) Confirmations to be sent to a sample of Da Silva Corporations' customers. Raja says he would expect a good response rate from customers. Page 4 Bob Boston, CPA, suggests using Positive (Blank) Confirmations to be sent to a sample of Da Silva Corporations' customers. Bob believes data from this suggestion will be reliable. Nancy Ng, CPA, suggests using Negative Confirmations to be sent to a sample of customers. Nancy argues the following two reasons to support her suggestion. 1. Negative confirmations will only be returned if necessary, thereby saving valuable audit staff time from reading more documents. acer a DI A $ 4 2 % 5 3 & 7 6 8 9 0 W e t u O P S d f g h k X C V b n alt ctrl age 1: 1. Negative confirmations will only be returned if necessary, thereby saving valuable audit staff time from reading more documents. 2. Inherent and control risk are assessed low. age 2: Lastly, Samantha Stanowicz, CPA, does not want to use Confirmations. Samantha suggests using substitute audit procedures which she prove are available and applicable to Da Silva Corporation. Samantha gives the following two reasons why she recommends using substitute audit procedures: 2 Page 3: 1. It is less expensive for the audit firm to perform these substitute audit procedures compared to sending Confirmations, thereby increasing the profit for the audit firm for its work on this audit engagement. 3 2. Receivables are not material. Page 4 REQUIRED: [A] Commenting with respect to both the response rate and the reliability of the evidence received, what would you expect to see if Bob's suggestion of using Positive (Blank) Confirmation is used rather than Raja's suggestion of using Positive (Blank) Confirmations? [B] Compare the reliability of Nancy's suggestion of using Negative Confirmations as an alternative to Positive Confirmations. acer @ A C $ 4 ) 2 3 % 5 & 7 6 8 9 w e er t u O s d f g h k V b m [A] Commenting with respect to both the response rate and the reliability of the evidence received, what would you expect to see if Bob's suggestion of using Positive (Blank) Confirmation is used rather than Raja's suggestion of using Positive (Blank) Confirmations? [B] Compare the reliability of Nancy's suggestion of using Negative Confirmations as an alternative to Positive Confirmations [C] Evaluate the two reasons Nancy provides to support her suggestion to use Negative Confirmations. Are these both appropriate reasons? [D] Evaluate the two reasons Samantha provides to support her suggestion to use substitute audit procedures (and not use Confirmations). Are these both appropriate reasons? 3: 4: Paragraph V BIU acer A & # 3 $ 4 % 5 6 7 8 9 0 r t u d f g h k V age 1 Question 2 (13 points) Confirmations 1 Da Silva Corporation Page 2: 2 You are the audit manager for the audit of Da Silva Corporation. You are discussing the potential use of Confirmations to assist in the evaluation of the existence and valuation of Da Silva's Account Receivable balance from its customers. You would use these Confirmations in a sampling to make a judgment about the entire population of Accounts Receivable, Page 3: Raja Ramachandran, CPA, suggests using Positive (Regular) Confirmations to be sent to a sample of Da Silva Corporations' customers. Raja says he would expect a good response rate from customers. Page 4 Bob Boston, CPA, suggests using Positive (Blank) Confirmations to be sent to a sample of Da Silva Corporations' customers. Bob believes data from this suggestion will be reliable. Nancy Ng, CPA, suggests using Negative Confirmations to be sent to a sample of customers. Nancy argues the following two reasons to support her suggestion. 1. Negative confirmations will only be returned if necessary, thereby saving valuable audit staff time from reading more documents. acer a DI A $ 4 2 % 5 3 & 7 6 8 9 0 W e t u O P S d f g h k X C V b n alt ctrl age 1: 1. Negative confirmations will only be returned if necessary, thereby saving valuable audit staff time from reading more documents. 2. Inherent and control risk are assessed low. age 2: Lastly, Samantha Stanowicz, CPA, does not want to use Confirmations. Samantha suggests using substitute audit procedures which she prove are available and applicable to Da Silva Corporation. Samantha gives the following two reasons why she recommends using substitute audit procedures: 2 Page 3: 1. It is less expensive for the audit firm to perform these substitute audit procedures compared to sending Confirmations, thereby increasing the profit for the audit firm for its work on this audit engagement. 3 2. Receivables are not material. Page 4 REQUIRED: [A] Commenting with respect to both the response rate and the reliability of the evidence received, what would you expect to see if Bob's suggestion of using Positive (Blank) Confirmation is used rather than Raja's suggestion of using Positive (Blank) Confirmations? [B] Compare the reliability of Nancy's suggestion of using Negative Confirmations as an alternative to Positive Confirmations. acer @ A C $ 4 ) 2 3 % 5 & 7 6 8 9 w e er t u O s d f g h k V b m [A] Commenting with respect to both the response rate and the reliability of the evidence received, what would you expect to see if Bob's suggestion of using Positive (Blank) Confirmation is used rather than Raja's suggestion of using Positive (Blank) Confirmations? [B] Compare the reliability of Nancy's suggestion of using Negative Confirmations as an alternative to Positive Confirmations [C] Evaluate the two reasons Nancy provides to support her suggestion to use Negative Confirmations. Are these both appropriate reasons? [D] Evaluate the two reasons Samantha provides to support her suggestion to use substitute audit procedures (and not use Confirmations). Are these both appropriate reasons? 3: 4: Paragraph V BIU acer A & # 3 $ 4 % 5 6 7 8 9 0 r t u d f g h k V