Occurrence Assertion Occurrence is a second assertion that can be proven by accounts receivable confirmations. A positive confirmation from the customer confirms the existence assertion in the financial statements. Alternative procedures may be more effective in obtaining the necessary audit evidence in such circumstances.
Confirmations of accounts receivable are said to be either negative or positive. In such circumstances, additional or alternative audit procedures may be necessary.
For example, the use of data encryption, electronic digital signatures, and procedures to verify website authenticity may improve the security of the electronic confirmation process.
Customers confirm accounts receivable, just as vendors confirm accounts payable data.
Because this does not address any customers with no balances recorded, auditors will also look at cash receipts after the year-end date. Electronic mail, facsimiles, and other electronic communications have become accepted methods of communication in addition to traditional mail.
Many entities around the world are experiencing greater challenges with regard to their profitability and, in some cases, their ability to continue as a going concern. According to standard auditing procedures, a positive response offers more validity.
It can be useful in obtaining audit evidence about relevant financial statement assertions regarding such items as receivables and payables, bank and other third party deposits and liabilities, investments, inventory, guarantees, contingent liabilities, significant transactions outside the normal course of business, and related party transactions.
Share on Facebook. The actual existence of transactions is one assertion that accounts receivable confirmations can prove.
ISA 505 requires the auditor to determine whether the use of external confirmations is necessary to obtain sufficient appropriate audit evidence at the assertion level. Knowing which assertions can be proved by confirmation can help you understand why your auditor asks for multiple audit procedures on the same account.
The significance of this risk will depend on the extent of influence the entity and its management have over the respondent.
Small Business - Chron. Function According to the AICPA -- the association for professional CPAs in the United States -- during an audit that conforms to generally accepted auditing standards, audit evidence is gathered to verify the assertions made on financial statements.
About the Author Vicki A Benge began writing professionally in 1984 as a newspaper reporter.