Negative - Is a request sent to the customer asking them to respond only if they disagree with the stated balance.

Positive confirmation is when the client can agree or disagree to give the document .

Negative

Negative confirmation is when the client disagree to provide the document .

• Positive confirmation requires proof of accuracy by affirming that the original information was correct or by providing the correct information if incorrect.

NEGATIVE CONFIRMATION

• A negative confirmation is a letter addressed to a debtor, requesting a response if the debtor disagrees with the stated account balance

Negative : Customer only replies if the receivable amount is incorrect.

Negative: The auditor asks the customer to respond directly only if they disagree with the balance. If they agree, they don't need to reply. No response is taken as agreement.

Negative confirmation: A request sent to a customer asking them to respond only if they disagree with the stated receivable balance.

positive confirmation: indicate whether they agree with the information

negetive confirmation: they disagree with the information

(Stronger evidence — used when risk is higher.)

Negative Confirmation: The customer replies only if the balance is wrong.

(Weaker evidence — used when risk is low.)

• The auditor sends a letter to the customer requesting them to confirm whether the balance stated is correct or not.

• The customer is asked to respond in all cases, whether they agree or disagree with the balance.

2. Negative Confirmation

• The auditor sends a letter asking the customer to respond only if the balance is incorrect.

• If the customer does not respond, the auditor assumes the balance is correct.

Negative confirmation means the customer is asked to respond only if the amount is wrong. If the customer agrees, they don’t need to reply.

Negative confirmation: You ask the customer to reply only if the number is wrong.

Negative Confirmation: Customer only responds if they disagree with the balance.

negative confirmation- auditor asks customer to reply only if they disagree with the amount, if customer agree, they don't need to reply

- Customer must reply, whether they agree or disagree with the balance.

- More reliable.

- Used when internal control is weak or balances are large.

Negative Confirmation

- Customer only replies if they disagree with the balance.

- Less reliable.

- Used when internal control is strong and balances are small.

Negative Confirmation: The customer only replies if the balance is wrong.

Negative Confirmation: A method where a response is only needed if the value is wrong.
Example: "Your balance is $500 — reply only if this is incorrect."

negative confirmation - reply only if there’s a problem

Negative Confirmation: Customer responds only if the balance is wrong.

Example:
"We show you owe one thousand ringgit. Please confirm if this is correct or not."

Negative confirmation
The auditor asks the customer to reply only if the amount is wrong. If there is no response, the auditor assumes the amount is correct. This method is used when the risk is low and the balances are small.

Example:
"We show you owe two hundred ringgit. Only reply if this is not correct."

The customer must reply to confirm if the amount they owe is correct or not.
Used when accuracy is very important.

Negative Confirmation

The customer only replies if the amount is wrong.
If they don’t reply, it’s assumed the amount is correct.

Negative confirmation is where the confirming party responds to auditor if they disagree with request information

Negative Confirmation: Customer replies or third party reply if they disagree only.

Demands a response

Negative

Less reliable audit evidence

- A positive confirmation is a request sent to a customer asking them to confirm whether a stated amount owed is correct or incorrect.

Negative Confirmation

- A negative confirmation is a request sent to a customer asking them to respond only if the stated amount is incorrect.

The auditor sends a request to the debtor(customer) asking them to confirm whether the stated balance is correct or not.

Negative:

The auditor sends a request to the debtor asking them to respond only if they disagree with the stated balance.

Negative- A request sent to the customer asking them to respond only if they disagree with the stated receivable balance.

Negative Confirmation: The customer only replies if the balance is wrong.

• method where customers are asked to verify the accuracy of their outstanding receivable balances, whether correct or incorrect. They must respond regardless of agreement.

Negative

• requires customers to respond only if they dispute the stated receivable balance. Silence implies agreement. Positive confirmation is more reliable, while negative confirmation is less costly but may miss errors if recipients ignore the request.

A type of audit confirmation request where the auditor asks the debtor to respond directly, indicating whether they agree or disagree with the stated balance or other information.

Negative Confirmation :

A type of audit confirmation request where the auditor asks the debtor to respond only if they disagree with the stated balance or information. If the debtor agrees, no response is required.

Negative: request sent to a customer asking them to respond only if they disagree with the stated amount.

A request sent to customer asking them to respond directly to the editor indicating agreement with the balance shown in the client's records.

Negative

A request sent to a customer asking them to respond only if they disagree with the stated balance.

• The customer is asked to reply whether the amount is correct or not.

• Even if the amount is correct, the customer must still respond.

Negative: when the auditor sends a letter to a customer asking them to only respond if the amount is wrong.

• If the amount is correct, the customer does not need to reply.

Negative Confirmation: An audit method where the auditor asks customers to respond only if they disagree with the recorded account balances.

Negative confirmation: The auditor sends a letter asking the customer to reply only if they disagree.

A letter is sent to the customer requesting them to respond directly to the auditor, whether they agree or disagree with the stated balance.

Negative confirmation

A letter is sent to the customer requesting them to respond only if they disagree with the stated balance.

• cheque did not redeemed in company statement on the year end

• Customer may not have received the goods or invoice yet, causing discrepancies.

Currency Exchange Issues – For foreign customers, exchange rate differences can cause mismatch

es.

• A payment or sale might have happened just before or after the confirmation date.

• This means the company’s records and the customer’s records don’t match yet.

• The customer has paid, but the payment hasn’t been properly matched to their account.

Duplicate billing – The customer was invoiced more than once for the same transaction

• Difference due to currency conversion rates between invoicing and recording

• The customer misinterprets the request or reviews their records incorrectly.

fraud

-GOODS NOT RECEIVED

-DUPLICATE INVOICING

Manual entry errors

Duplicate invoicing

Disputed amounts due to pricing, quality, or quantity issues

Inquire why the client is refusing. There could be legitimate reasons (e.g., legal restrictions, sensitive customer relationships), or it might indicate potential fraud or management concerns.

You are auditing ABC Co and receive the following responses to receivables confirmations:

• Ali: Balance confirmed, but lower than the client’s records.

• Badrul: No response after two reminders.

• Cempaka: Responded with agreement, but your client insists the account is still in dispute.

a. What audit procedures would you perform for each customer?
b. How would you assess the audit risk?

Ali: Review subsequent receipts, shipping docs, and customer correspondence to resolve the difference.

Badrul: Perform alternative procedures — check subsequent payments, sales invoices, and delivery notes.

Cempaka: Review dispute correspondence, invoices, and assess collectability.

b. Audit Risk Assessment

Ali: Moderate — discrepancy needs clarification.

Badrul: High — no response increases risk of misstatement.

Cempaka: High — dispute suggests possible collection or valuation issue.

• Ali: Check for timing differences such as verify invoices and payments.

• Badrul: Use alternative procedures such as cash receipts, invoices.

• Cempaka: Review evidence of dispute such as check correspondence and contract terms.

b. Audit Risk

• Ali: Moderate risk – possible overstatement.

• Badrul: Higher risk – no direct confirmation.

• Cempaka: High risk – dispute affects recoverability.

1. Ali

• reconcile the balance

2. Badrul

• use authorithy to ensure the reason of unresponsive from the customer

3. Cempaka

• Review the document such as invoice

Risk Assesment

1. Ali - Moderate Risk

2. Badrul - High Risk

3. Cempaka - Moderate Risk

• Ali: Check reason for difference.

• Badrul: Do alternative tests (e.g. cash receipts).

• Cempaka: Verify dispute evidence.

b. Risk:

• Ali: Moderate.

• Badrul: High.

• Cempaka: Moderate to high.

• Investigate the difference:

  • Compare the client's ledger with Ali’s confirmation.

  • Check if the difference is due to timing issues, such as:

    • Payments made by Ali not yet recorded.

    • Goods in transit or discounts.

Badrul

• Perform alternative audit procedures, such as:

  • Examine subsequent cash receipts (payments made by Badrul after year-end).

  • Review sales invoices, delivery orders, and contracts for evidence of sale.

  • Check correspondence for any indication of disputes or problems.

Cempaka

Obtain written explanation from client management regarding the dispute.

Review:

• Sales terms and contracts with Cempaka.

• Any legal letters, correspondence, or emails showing dispute details.

• Any adjustments, credit notes, or provisions for doubtful debts related to the dispute.

Consider the need for provision or disclosure in the financial statements.

Badrul

Higher Risk – Non-response increases risk of existence and accuracy issues. Must rely on sufficient alternative procedures

a)compare confirmation and client records, review sales invoices

b)moderate risk

Badrul

a)perform alternative procedure, review sales invoices, check cash receipts

b) high risk

Cempaka

a)investigate disputes detailed, reviewed legal documents, assess need for doubtful debt

b) hugh risk

Most risky client is Cempaka

Audit procedure = subsequent cash receipt from ali

Risk = miderate risk

Badrul

Audit procedure = perform alternative procedure which sales invoice

Risk = high risk

Cempaka

Audit procedure = review dispute correspondence

Risk = moderate risk

Badrul - since there’s no response, the auditor should use other evidence such as payment records and delivery notes.

Cempaka - the auditor should get proof of the dispute from the client and decide if the balance needs to be adjusted or disclosed.

b. Ali’s case - has moderate audit risk due to the difference in balances.

Badrul’s case - has higher risk because there’s no confirmation, and other evidence must be relied on.

Cempaka’s case - has risk in presentation, as a dispute may mean the receivable is not fully collectible or needs special disclosure.

Badrul - Perform alternative procedures like reviewing subsequent payments, invoices, and shipping documents.

Chempaka - Review correspondence, dispute documents, and evaluate the client’s explanation.

b. Ali - Moderate – Risk of misstatement due to possible timing error or incorrect recording.

Badrul - High – No confirmation and need to rely fully on alternative procedures.

Cempaka - High – Dispute increases risk of misstatement or bad debt. Must assess if the receivable is overstated.

Ali – Check invoices, payments, and credit notes.

Badrul - Check later payments (bank statements). Review sales invoices and delivery documents.

Cempaka – Check emails or letters

about the dispute.

b)

Ali – Moderate Risk

Risk of misstatement due to error or cutoff issue.

Badrul – Higher Risk

Lack of confirmation increases detection risk.

Cempaka – Moderate to High Risk

Dispute indicates potential impairment or recoverability issue.

Ali : Check the difference between Ali’s confirmation and the client's records

Badrul : Since Badrul didn’t reply,check other evidence like Payment after year-end.

Cempaka : Read documents about the dispute.

b) Audit risk

Ali: Medium risk. There’s a small issue, but extra checking can solve it.

Badrul: High risk. No reply means we need strong other evidence.

Cempaka: High risk. If the money is not collected and not adjusted, it could be wrong in the accounts.

Ali - Reconcile, review payments/credit notes, inspect invoices

Badrul - Alternative procedures (receipts, invoices, delivery docs)

Cempaka - Investigate dispute, legal docs, correspondence

(b) Audit risk

Ali - Moderate risk

Badrul - High risk

Cempaka - Moderate risk

Ali- Match invoices and payments to find the difference

Badrul - Do alternative procedures

Cempaka - Review dispute details and correspondence

b.

Ali - moderate risk

Badrul - high risk

Cempaka - high risk

Badrul - review subsequent receipt

Cempaka - Evaluate reasonableness of the client’s assertion in light of the third-party confirmation.

b. Ali - moderate risk

Badrul - high risk

Cempaka - high risk

Compare the company’s revenue to:

• Industry averages

• Internal budgets or forecasts
  If the company is reporting much higher sales than expected or compared to competitors, may need to investigate further.

Compare current year revenue with prior years. Look for unusual spikes or inconsistent growth without clear reasons.

Ratio analysis

• Compare currentperiod revenue with prior periods,budget or forecast and industry averages.

- Use statistical models to predict expected revenue based on historical trends, economic factors, and industry data.

1. Investigate the difference: Obtain a reconciliation from the client to explain the variance.

   
   

2. Perform alternative procedures such as:

   • Review subsequent cash receipts.

   • Inspect related sales invoices and delivery notes.

3. Investigate the nature of the dispute: Obtain details from the client about the dispute

2. Ratio Analysis - Compare revenue-related ratios to prior periods, industry, or budgets.

Ali: Review relevant documentation such as invoices, shipping documents, and credit memos to determine the cause of the discrepancy.

Badrul: Review subsequent cash receipts to verify whether the balance was settled post year-end.

Cempaka: Engage in direct discussions with the client’s legal or credit management personnel for clarification.

b. Ali: Moderate audit risk - If reconciled through appropriate documentation and timing differences are evident, the risk may be mitigated.

Badrul: High Audit Risk - The absence of direct confirmation necessitates reliance on alternative procedures, which may not be equally persuasive.

Cempaka: High audit risk - If unresolved, this could indicate either a misstatement or the need for an allowance for doubtful accounts.