Negative Confirmations of Accounts Receivable Are Less Effective Than Positive

question 38

Multiple Choice

Negative confirmations of accounts receivable are less effective than positive confirmations because when using negative confirmations:

• A) the auditor cannot infer that all nonrespondents have verified their account information.
• B) they do not produce evidential matter that is statistically quantifiable.
• C) some recipients may report incorrect balances that require extensive follow-up.
• D) a majority of recipients usually lacks the willingness to respond objectively.

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Definitions:

Duration Concept

A measure of the sensitivity of a bond's price to changes in interest rates, gauging how much a bond's price will change for a given fluctuation in rates.

Price Volatility

The degree of variation in the price of a financial instrument, commodity, or market index over time, often measured by the standard deviation of returns.

Convexity

This is a measure of the curvature or the degree of the curve in the relationship between bond prices and bond yields, indicating how the duration of a bond changes as the interest rate changes.

Bond Price

The amount of money an investor pays to purchase a bond and can fluctuate based on interest rates, credit quality, and other factors.