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Differentiate Confirmation and Inquiry

Confirmation involves sending letters to third parties to verify account balances, while inquiry involves asking client management questions. Confirmations are generally more reliable evidence than inquiry because they provide independent verification from outside the client. There are two types of confirmation: positive confirmation requires the third party to respond confirming accuracy, while negative confirmation only requires a response if there is a disagreement. Materiality is related to substantive tests in that auditors determine the scope of tests based on amounts that could impact the financial statements if misstated. Analytical procedures analyze relationships between data to identify unexpected fluctuations, while tests of details examine individual transactions and balances.

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913 views3 pages

Differentiate Confirmation and Inquiry

Confirmation involves sending letters to third parties to verify account balances, while inquiry involves asking client management questions. Confirmations are generally more reliable evidence than inquiry because they provide independent verification from outside the client. There are two types of confirmation: positive confirmation requires the third party to respond confirming accuracy, while negative confirmation only requires a response if there is a disagreement. Materiality is related to substantive tests in that auditors determine the scope of tests based on amounts that could impact the financial statements if misstated. Analytical procedures analyze relationships between data to identify unexpected fluctuations, while tests of details examine individual transactions and balances.

Uploaded by

Jasmine Lim
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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1) Differentiate confirmation and inquiry.

 Inquiry consists of seeking information of knowledgeable persons, both financial and


nonfinancial, inside or outside the entity. Inquiry is an audit procedure that is used
extensively throughout the audit and often is complementary to performing
other audit procedures.

Auditors inquire accountant and related management to gather information and


obtain an explanation on the mater that found by auditors.
Sometimes auditors inquire about management about the business process and
the ways how financial transactions are recording as well as the major control on
business transactions.
The inquiry is also one of the most important audit procedures and it could be
used in different stages.
For example, the auditor might inquire management at the planning stage and
the auditor could also inquire management to confirm the consignment liabilities
at the end of the audit work.
Audit inquiry is sometimes used by the auditor to obtain the audit evidence and
sometimes is used to obtain an understanding of some nature of business or
accounting transactions in order to gain enough knowledge to design and
perform testing.

A confirmation is a letter sent by an outside auditor to the suppliers and customers of a


client, asking them to verify the payable and receivable balances associated with them in
the client's financial records.

A confirmation is a letter sent by an outside auditor to the suppliers and customers of a client,
asking them to verify the payable and receivable balances associated with them in the client’s
financial records . This information is considered quite valuable by the auditor, since it provides
independent confirmation of certain information in a client’s balance sheet. The auditor sends a
positive confirmation letter when requesting that recipients return a response even when they
agree with the provided information. The auditor sends a negative confirmation letter when
requesting that recipients only return a response when they disagree with the provided
information.

In securities trading, a confirmation is a written acknowledgment by a broker that a trade has


been completed.
2) Which is more reliable between confirmation and inquiry? Explain your answer.
3) What are the types of confirmation?

Positive Confirmation

- Positive confirmation is an auditing inquiry that requires the customer to


respond, confirming the accuracy of an item. Positive confirmation
requires proof of accuracy by affirming that the original information was
correct or by providing the correct information if incorrect.\
- Positive confirmation is an auditing inquiry that requires the customer to
respond, confirming the accuracy of an item.
- Positive confirmation requires proof of accuracy by affirming that the
original information was correct or by providing the correct information if
incorrect.
- Positive confirmations are used to verify the amounts of liabilities,
investments, bank accounts, accounts receivables, and payables.

Negative Confirmation

- This is a request to contact the auditor only if the customer has an issue with the
accounts receivable information contained within the confirmation. This is a less
robust form of evidence, since there is an inclination by customers to not contact the
auditor, which leads to the presumption by the auditor that customers agree with the
presented accounts receivable information.
- Negative confirmation letters are also used to ascertain if the recipient
wants to opt-out of an event outlined in the letter.
- Negative confirmation is more commonly used if the individual's or
business's records are generally considered to be highly accurate.
Typically, the company receiving a negative confirmation is believed to
have stringent internal requirements and business practices. As a
result, negative confirmation is much less costly and time-intensive for
auditors since they usually only need to send one letter out.

While positive confirmation requires supporting information despite the


accuracy of the original records, negative confirmation requires a response
only if there is a discrepancy. 
As a result, a positive confirmation tends to be a better representation of
the financial information than a negative confirmation since it's an explicit
request that has been returned by the recipient. If any dispute arises, a
positive confirmation is physical evidence that the information was
confirmed.
4) What is the relationship of materiality to the substantive tests?

5) Differentiate analytical procedures and tests of details

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