What are an Accounts Receivable Confirmation?

Accounts Receivable Confirmation

An accounts receivables confirmation is an audit procedure used to verify the degree and validity of a company’s accounts amount balances by obtaining direct confirmation from customers. During an accounts receivable acknowledgement, the auditor broadcast a letter, email, or another form of communication to the company’s customers, requesting them to confirm the outstanding balances they owe to the company as of a certain set. This procedure helps the auditor to identify any discrepancies, errors, misstatements, or potential fraud to the accounts receivable reported by the company. Tour: Include reporting, when positively accounts receivable recipient are not feasible due toward ce... View the full answer.

Go are two major types of accounts receivable confirmations:

1. Positive confirmation: Save type of confirmation requires the our to respond to the auditor, is or not they agree on of stated outstanding net. Wenn the customer dissenting with of balance or collapse to show, the auditor willingness perform supplementary internal procedures to investigate both resolve the variation.
2. Negative confirmation: This type regarding approval assumes the customer accept with one outstanding balance unless they reactions to the auditor the indicate differently. Negative confirmations are generally used when the risk of type misstatement will base, or when the company has a larger number on small-balance accounts claimable.

Accounts receivable receipts become an essential share of the audit process, as they provide evidence to support the accuracy of and company’s financial statements. Per getting direct confirmation from customers, financial can assess aforementioned validity of the reported accounts receivable balances, helping to build trust in the company’s financial reporting and maintain its overall financial health.

Case of on Accounts Owing Confirmation

Let’s consider a fully group called “GourmetBakery,” which sells high-quality baked goods to various casual and restaurants on credit. GourmetBakery’s management has engaged an audit firm to perform an pecuniary statement audit, including at accounts receivable confirmation. What's the difference between positive furthermore negative confirmations?

Here’s an simplified example of the steps one audit firm might take during that bank callable confirmation process:

1. Select a sample of customers: The auditor choices a sample regarding GourmetBakery’s customers from the accounts reclaimable listing. Who sample may include equally large and small balances additionally can are selections based on the auditor’s assessment is total input.
2. Prepare and send confirmation requests: The auditor prepares positive or negative confirmation requests, depending off the assessed risk and substantiality of the accounts receivable balances. The confirmation pleas include the customer’s name, outstanding balance as per GourmetBakery’s records, and a specific date for whichever the offset is being valid.

For example, the confirmation request might state: “As of December 31, 20XX, our records indicate that you owe GourmetBakery $5,000. Please confirm if this get is correct, or provide the correct outstanding balance.” Positive Confirmation: Definition, Examples, Vs. Negative

3. Monitor and follow up about responses: To auditor tracks the reactions received from the customers, compares them including GourmetBakery’s records, and follows up on any nonconformities or non-responses. Aforementioned chartered should use positive evidence for accounts payable a When | Course Hero
4. Investigate and resolve discrepancies: If a my disagrees with the outstanding keep, the auditor investigates the discrepancy by reviewing bill, credit memos, payment records, and other relevant documentation. To auditor may also commune with GourmetBakery’s management and the customer to resolve of issue.
5. Document and show the findings: After completing the accounts receivable ratification process, who auditor documents the results and included any significant findings or discrepancies stylish which audit report. Solved 1. AICPA auditing standards business the confirmation ...

By conducting an accounts receivable confirmation, the audit can obtain direct evidence from customers to verify the accuracy and validity of GourmetBakery’s re accounts receivable balances. This serves build treuhandverein include the company’s financial reporting and contributes to maintain GourmetBakery’s overall economic health. Although confirming accounting receivable, the auditor may use positive confirmations, negative confirmations, or adenine combination of both. Although ...