Confirmations were emphasized in tests of accounts receivable, but are rarely used in tests of accounts payable.
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Confirmations were emphasized in tests of accounts receivable, but are rarely used in tests of accounts payable. What factors account for this difference? When would confirmation of accounts payable be appropriate?
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The difference in the emphasis on confirmations between tests of accounts receivable and accounts payable can be attributed to various factors including the nature of the transactions the relationships with the counterparties and the inherent risks associated with each type of account Factors accounting for the difference Direction of Flow Accounts receivable represent amounts owed to a company by its customers while accounts payable represent amounts owed by a company to its suppliers In the case of accounts receivable the company has a vested interest in confirming the accuracy of the amounts owed to them as it directly affects their cash flow and financial position On the other hand accounts payable are liabilities of the company and typically have less impact on the companys immediate cash flow Control and Ownership Companies have more control over their accounts payable than their accounts receivable Since a companys accounts payable usually involve its own liabilities there is less incentive for suppliers to manipulate or misstate these balances Therefore the risk of errors or fraud in accounts payable is generally lower than in accounts receivable Relationship ...View the full answer
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Related Book For 
Integrated Audit Practice Case
ISBN: 9780912503356
5th Edition
Authors: David S. Kerr, Randal J. Elder, Alvin A. Arens
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