ACCA Advanced Audit and Assurance (AAA) Practice Exam

In which situation would a negative confirmation request be most appropriate?

1. When high assurance is required

2. When low risk exists and the recipient is expected to agree

3. When immediate feedback is crucial for audit progress

4. When prior discrepancies have been noted

The correct answer is: When low risk exists and the recipient is expected to agree

A negative confirmation request is most appropriate when low risk exists and the recipient is expected to agree with the information provided. This method involves asking recipients to respond only if they do not agree with the stated balances or amounts. It is less intensive than a positive confirmation, where a response is required to confirm the accuracy of the information. In situations with low risk, the auditor can rely on the assumption that recipients will respond if there are discrepancies. This makes negative confirmations a practical and efficient means of obtaining audit evidence when the overall risk of material misstatement is reduced. In contrast, circumstances that require high assurance, immediate feedback, or involve noted discrepancies would be better suited for other confirmation methods. For example, when high assurance is needed, positive confirmations are more effective as they require explicit verification from the recipient. Similarly, if immediate feedback is crucial for audit progress or if past discrepancies have been noted, using a positive confirmation method would facilitate greater reliability and prompt responses.