In auditing accounts receivable the negative form of confirmation request most likely would be used when:

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BlackTom AI · Accepted Answer

Question restatement: The prompt asks when the negative form of a confirmation request would most likely be used in auditing accounts receivable.

Option analysis: The provided answer option is: "the combined assessed level of inherent and control risk relative to accounts receivable is low."

Reasoning for the correct choice: Negative confirmations are typically employed when the assessed risks are low and internal controls over receivables are strong. In this scenario, because the auditor anticipates few or no exceptions and expects a high likelihood of a positive response from recipients, a negative confirmation efficiently tests the existence and accuracy of AR balances while reducing substantive testing. The low inherent and control risk means there is less likelihood of material misstatement, which makes negative confirmations a cost-effective and appropriate choice.

Why this matches standard auditing practice: Under ASC/GAAS guidance, negative confirmations are most appropriate when the population is large, a high response rate is expected, and the auditor has confidence in internal controls. When these conditions hold, a single nonresponse is treated as an indication of possible no error, limiting the need for extensive follow-up.

Potential misconceptions with other (unlisted) options: If there were options stating that negative confirmations are used when risk is high, or when the population is small, those would be incorrect. High risk would typically require more direct evidence, such as positive confirmations or additional substantive procedures. A small population reduces the efficiency gains of using negatives, and positive confirmations would be more common in that case. If an option claimed negative confirmations replace all substantive testing regardless of risk assessment, that would misstate auditing standards.

In summary, the reason negative confirmations are appropriate here is the combination of low inherent and control risk for accounts receivable, which supports relying on a smaller amount of evidence obtained through negative confirmations while maintaining audit effectiveness.

ACCT1059 Assessment 1 Part B (Week 11 quiz)

In auditing accounts receivable the negative form of confirmation request most likely would be used when:

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