Auditors ordinarily send a standard confirmation request to all banks with which the client has done business during the year under audit, regardless of the year-end balances. A purpose of this procedure is to:

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Auditors use bank confirmations to obtain information about a client’s relationships with banks and to uncover potential liabilities or encumbrances that the client may have recorded off the books.
Option 1: 'detect questionable bank activities that may otherwise not be discovered.' While bank confirmations can sometimes reveal unusual items, detecting questionable activities is not the primary objective of confirming with banks; confirmations focus on obligations and arrangements rather than fraud detection per se.
Option 2: 'seek information about contingent liabilities and security agreements.' This aligns with the main purpose of bank confirmations, since confirmations often disclose lines of credit, guarantees, loans, liens, and other security interests that create contingent or encumbered liabilities for the client.
Option 3: 'provide the data necessary to prepare a proof of cash.' A proof of cash relies on cash receipts and disbursements data and reconciliations; bank confirmations are not the primary source used to assemble a formal proof of cash, though the information may supplement reconciliations.
Option 4: 'request that a cutoff bank statement and related checks be sent to the audit.' Cutoff statements are a specific test procedure, but requesting cutoff statements is not the standard purpose of the general bank confirmation process.
Thus, the option that best describes the principal purpose is that the confirmation seeks information about contingent liabilities and security agreements.

ACG442_A_2025SPRING Auditing Ch06 Practice Quiz

Auditors ordinarily send a standard confirmation request to all banks with which the client has done business during the year under audit, regardless of the year-end balances. A purpose of this procedure is to:

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