ACCA Audit and Assurance (F8) Practice Exam

What is a limitation of using confirmations?

1. They can confirm overstatements

2. They are quick and easy to obtain

3. They are always reliable

4. They require little follow-up effort

The correct answer is: They can confirm overstatements

The correct answer highlights a significant limitation of using confirmations, which is that they can, indeed, confirm overstatements. This situation may arise because confirmations are often dependent on the information provided by external parties, which could include inaccuracies or misrepresentations. If a client’s records are intentionally or unintentionally misstated, the confirmations will simply corroborate those inaccuracies, leading the auditor to potentially accept incorrect account balances. In the context of audit procedures, confirmations serve as evidence to support the validity of balances or transactions. They are valuable for verifying account information and provide a great level of assurance when appropriately used. However, the reliance solely on this method can be misleading if fraud or error exists in the underlying accounting records. Other options, such as those suggesting confirmations are always reliable or require little follow-up effort, mischaracterize the nature of confirmations in the audit process. They are not infallible; follow-up may often be necessary to ensure the accuracy of the information received. Additionally, while confirmations can be quick and easy to obtain in some cases, this does not inherently reflect their reliability or comprehensiveness as audit evidence.