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INTRODUCTION
The direct confirmation of accounts receivable balances with third parties is an auditing procedure that is firmly established and widely used by the auditing profession. Accounts receivable is an important audit area because it is often material in amount, and accounts are susceptible to errors and irregularities. However, the effectiveness of this procedure has come under critical review over the last two decades (Armitage, 1990; Davis, Neter, and Palmer, 1967; Hubbard and Bullington, 1972; Sauls, 1971 and 1972; Sorkin, 1978; and Warren, 1973). Although there has been no consensus on error detection rates for the different confirmation forms, the previous research has established that accounts receivable confirmations do not discover all errors in accounts that are confirmed. If auditors are aware of the relative effectiveness of this procedure when planning and conducting their audit, they can control audit risk at an acceptable level by accurately assessing the competence of the evidence they have gathered. However, if auditors over-estimate the effectiveness of the accounts receivable confirmation procedure, auditors may not be controlling audit risk at an acceptable level.
PURPOSE
The purpose of this paper is to report the results of a survey of practicing CPAs regarding their usage of accounts receivable confirmations in practice, and their assessment of the competence and effectiveness of this auditing procedure.
TYPE OF CONFIRMATIONS
There are four types of accounts receivable confirmation forms. Positive confirmations request recipients to reply directly to the auditor whether they agree or it disagree with the stated account balance. Negative confirmations, on the other hand, request recipients to reply only if they disagree with the stated account balance. The blank form of confirmation does not provide the recipients a balance to verify, but instead asks the recipients to supply the account balance and reply directly to the auditors. Finaly, the expanded field confirmation is similar to the positive form, but the expanded field includes two or more amounts (the correct account balance and one or more incorrect amounts). The recipients are requested to select the correct amount from the choices and reply directly to the auditor.
PRIOR RESEARCH
Several research studies have examined accounts receivable confirmation effectiveness by measuring the error detection rate for confirmation of intentionally misstated account balances. The error detection rate was...