ACC311 Fundamentals of Auditing GDB 2 Solution Spring 2014

Mr. Ali is on external audit of Model Manufacturing Limited (MML) and planning to verify the company’s various accounts’ balances with special focus on verification of the receivables. He has observed that most of the company’s sales were on credit basis thus increasing the number of debtors over five thousand. For these balances, he is interested to obtain balance confirmation using negative method. But, after going through a complete review of MML’s internal controls, one of his team members argues to use positive method instead.

a. Do you think that the negative method used by Ali is appropriate? Explain your answer with appropriate rationale.

b. Comment on the argument of Ali team member.

c. Give your own opinion in selection of both the methods.