The Satyam auditors attempted to confirm both cash and accounts receivable balances with external parties. Which of the audit assertions for cash and accounts receivable would confirmations be most relevant?
What will be an ideal response?
For asset accounts, such as cash and accounts receivable, confirmations generally provide appropriate
evidence for the existence and accuracy assertions. A returned confirmation from a recipient who
agrees with the recorded balance provides the auditor evidence that the recorded balance must exist
(represents a valid asset) and the amounts are accurate. Confirmations of assets generally do not provide
appropriate evidence about completeness because items to be confirmed are generally selected from
recorded balances (recall completeness is concerned with existing assets that have not been recorded).
Thus, the auditor is unlikely to select unrecorded items to be confirmed.
Unless specific terms and conditions related to the title or ownership of the assets are confirmed,
confirmations generally do not provide sufficient appropriate evidence related to other balance-related
assertions (i.e. Rights and obligations) or assertions related to presentation and disclosure.
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