ACCA AA · Chapter 11 · Question 4 of 12
Under ISA 505, in which situation would it be appropriate to use negative confirmations as the sole substantive procedure for receivables?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) The risk of material misstatement is low, there are many small homogeneous balances, a very low exception rate is expected and recipients are not expected to disregard requests
Explanation
Negative confirmations only require a reply if the customer disagrees, so they provide less persuasive evidence. ISA 505 permits their use as the sole substantive procedure only when all the listed conditions hold. Large balances, significant risks or weak controls call for positive confirmations and other more persuasive procedures.
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