Question

Required information Confirmation Procedures for Debt Read the case and answer the questions that follow. Debt transactions and accounts are often few in number but material in dollar amount. Also, lenders are eager to confirm balances, thereby assisting auditors in verifying amounts owed. As such, confirmations provide an easy tool for obtaining excellent evidence on material balances CONCEPT REVIEW: Confirmations, while not required for debt, are an efficient and effective way for auditors to obtain a high level of third party evidence on material amounts and balances. Read the case. Then answer the questions based on it! BACKGROUND: Notes payable to financial institutions are confirmed as part of the confirmation of cash deposit balances. Standard confirmation forms include a request that the financial institution confirm all borrowings by the depositor McGraw CPA is the auditor for Dillon Industries, a manufacturer of widgets. Dillon has ! This question will be sent to your instructor for grading. < Prev 5 6 of 6 ! Next >

Answer 1

1.The letter of confirmation of balance from the bank should not have included both debt balances as well as account numbers listed on confirmation. It should include the account number against which balance will report the account balances. Hence, both debt balances and account number is not correct.

2. The auditee should request the third party to confirm the balances and also ask them to send the confirmation to the auditor directly. In the given scenario, the confirmation was prepared by client's controller and sent to bank instead it should have been prepared and directly sent by ABC Bank to the McGraw, the auditor.

3. Bank gave confirmation to the auditee thus making the data exposed to manipulations by the client. Instead they (ie the bank) should have directly sent it to the auditor.