The confirmation process is defined as the process of obtaining and evaluating a direct communication from a third party in response to a request for information about a particular item affecting financial statement assertions.
a. List the factors that affect the reliability of confirmations.
b. One of the allegations in a recent fraud was that confirmations of account balances to various banks were determined to be forgeries. Auditing standards state that “an audit rarely involves the authentication of documentation, nor is the auditor trained as or expected to be an expert in such authentication.” What steps could the auditors have taken to ensure that bank confirmations were reliable?
c. Refer back to EarthWear Clothiers’ financial statements included after Chapter 1. Identify any information on EarthWear’s financial statements that might be verified through the use of confirmations.