Negative Confirmation of Accounts Receivable Is Less Effective Than Positive

question 384

Multiple Choice

Negative confirmation of accounts receivable is less effective than positive confirmation of accounts receivable because:

• A) A majority of recipients usually lack the willingness to respond objectively.
• B) Some recipients may report incorrect balances that require extensive follow-up.
• C) The auditor cannot infer that all nonrespondents have verified their account information.
• D) Negative confirmations do not produce audit evidence that is statistically quantifiable.

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Definitions:

Liabilities

Financial obligations or debts owed by a person or business to others, required to be repaid over time.

Operating Expense Fee

Fees charged by mutual funds and investment companies for the cost of managing the fund, including administrative and management services.

Front-End Load Fee

A charge applied at the time of purchase of an investment, typically pertaining to mutual funds.

12b-1 Fee

A fee that mutual funds may charge for marketing, distribution, and service expenses, expressed as a percentage of assets under management.