ACCA Audit and Assurance (F8) Practice Exam

Which is an advantage of confirmations in auditing?

1. They minimize the workload for auditors

2. They provide evidence of existence and accuracy

3. They eliminate the need for other audit procedures

4. They guarantee the validity of all balance amounts

The correct answer is: They provide evidence of existence and accuracy

An advantage of confirmations in auditing is that they provide evidence of existence and accuracy. This process involves obtaining direct written verification from third parties, such as banks or customers, regarding the accuracy of account balances or other financial information. By soliciting confirmation from independent sources, auditors can obtain reliable evidence that supports the validity of the information reported by the client. This evidence is crucial for assessing the risk of material misstatement in financial statements. The process helps auditors to verify that assets, liabilities, or transactions exist as shown in the financial records, thereby enhancing the credibility of the financial reporting. Confirmations also help in identifying any discrepancies between the client’s records and third-party confirmations, providing further assurance regarding the accounting assertions. While confirmations are valuable, they do not minimize the workload for auditors or eliminate the need for other audit procedures, as a comprehensive audit requires a variety of evidence-gathering methods. Additionally, confirmations cannot guarantee the validity of all balance amounts, as there is still potential for misstatements or misrepresentation even with confirmed data.