Which of the following statements is correct concerning the use of negative confirmation requests?

Question

BlackTom AI · Accepted Answer

When evaluating statements about negative confirmation requests, we need to consider what auditors expect from this procedure and what the absence of a response implies.
Option 1: 'Negative confirmation requests are effective when detection risk is low.' This is not accurate because negative confirmations are generally more useful when detection risk is higher and substantive testing is limited; they are less trustworthy when the population is large or when respondents are likely to ignore them. In low-detection-risk situations, other procedures might suffice, making this statement misleading.
Option 2: 'Negative confirmation requests are effective when understatements of account balances are suspected.' This is incorrect because negative confirmations primarily help detect overstatements, not understatements. If understatements are suspected, the risk assessment and procedures would address it differently, so the claim reverses the typical use.
Option 3: 'Unreturned negative confirmation requests indicate that alternative procedures are necessary.' This option overstates the implication of a nonresponse. While a lack of response may prompt additional procedures, auditors typically pursue alternative evidence but do not automatically conclude that they are always necessary; they evaluate in the context of risks, responses, and the overall evidence gathered. The statement is unfairly absolute.
Option 4: 'Unreturned negative confirmation requests rarely provide significant explicit evidence.' This aligns with auditing guidance: when a negative confirmation is not returned, it provides little to no direct evidence about the accuracy of balances or assertions, because nonresponse could be due to benign reasons (sender did not reply, incorrect address, etc.) and does not confirm anything about the amount. Therefore, nonresponse rarely constitutes significant explicit evidence and requires alternative procedures or additional corroboration to obtain sufficient audit evidence.

ACG442_A_2025SPRING Auditing Ch07 Practice Quiz

Which of the following statements is correct concerning the use of negative confirmation requests?

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