Question $13(3$ points$)$

David, your staff auditor, is performing the analysis of accounts receivable. Several positive confirmations were not returned. Additionally, several returned confirmations reflected balances lower than those recorded by the client.

Since positive confirmations were not returned, David plans to send a large number of negative confirmations to obtain additional evidence for his analysis. David has also proposed adjusting entries to reduce the balances recorded for the accounts confirmed with lower dollar amounts. What would your feedback be to David?

Sending negative confirmations in addition to the positive confirmations already sent is not a good idea. Negative confirmations increase the risk that misstatements will not be identified. You should send additional positive confirmations and perform alternative procedures for the accounts for which confirmations were not returned. However, it is appropriate to propose adjusting entries based on the confirmations returned without additional investigation since those confirmations are reliable sources of evidence from independent third parties.

Sending negative confirmations in addition to the positive confirmations already sent is good idea since positive confirmations aren't being returned. Additionally, it is appropriate to propose adjusting entries based on the confirmations returned withour any additional investigation since those confirmations are reliable sources of evident from independent third parties.