ACCA Advanced Audit and Assurance (AAA) Practice Exam

What characterizes a negative confirmation request?

1. The confirming party must respond if they agree with the information

2. The confirming party only responds if they disagree

3. It involves no response from the confirming party

4. The information must be verified by internal management

The correct answer is: The confirming party only responds if they disagree

A negative confirmation request is characterized by the requirement that the confirming party only need to respond if they disagree with the information presented in the confirmation request. This type of confirmation is used primarily for less significant balances or transactions where the auditor believes that reliability can be maintained without the need for a response unless there is a disagreement. In this context, the effectiveness of negative confirmations relies on the assumption that if the confirming party does not respond, they effectively agree with the information provided. This can be a more cost-effective and time-efficient method of confirming balances, especially when there is a low risk of error. However, if the confirming party does respond, it triggers a review of the discrepancies noted. The other options do not accurately describe the nature of negative confirmations. For example, a confirmation that requires a response upon agreement (as one of the other choices suggests) does not align with the concept of negative confirmations and instead describes a positive confirmation request. Similarly, stating that it involves no response from the confirming party does not accurately reflect how negative confirmations function, as a lack of response implies agreement rather than no engagement with the information at all. Lastly, verification by internal management does not pertain to the nature of confirmation requests themselves but rather pertains to internal procedures and controls