Problem $9($Confirmations and Revenue Testing$)$

The engagement team, based on its risk assessment, decided to confirm $100\%$ of a Company$$s accounts receivable as of December $31,2023.$ The team used positive confirmations, whereby the customers were asked to sign the confirmation indicating agreement or disagreement with the balance. After multiple attempts, all the confirmations came back agreeing with the Company$$s year end balances.

Based upon the results of the confirmation process and similar results for the prior year audit, the engagement team concluded that NO testing of revenue recognition was necessary, rationalizing that the customers would not have confirmed the accounts receivable balances if there had been anything wrong with the way the Company had recognized revenue. Documentation like this conclusion was added to the engagement audit file.

Was the conclusion reached by the engagement team the proper conclusion?

A$.$ True, customers just do not agree to accounts receivable balances if the company has not properly recognized revenue.

B$.$ False, the confirmation of accounts receivable and their subsequent payment provides no evidence as to the appropriateness of revenue recognition.