AUDITING PROBLEMS 1

Instruction: Think before writing your answer. No erasure and No cheating. Plagiarism is illegal, and all who
caught on act of it will be penalized. (20points)

1. Distinguish between a positive and a negative confirmation and state the circumstances
in which each should be used. Why do CPA firms frequently use a combination of positive
and negative confirmations on the same audit?

Answer – Positive Confirmation requires the response of the receiver and its supporting information and
docusments, while Negative Confirmation requires only the response of the receiver. Those two
confirmations are used frequently both by CPA firms because it has specified purpose of use: Positive
Confirmation for large amounts, and while the Negative Confirmations for smaller amounts.

2. Explain the difference between Accounting and Auditing

Answer – Generally speaking, accounting is defined as managing an individual's or company's monetary

records and reporting their financial affairs, while on the other hand, Auditing examines an individual's
or company's accounting records to determine if the information they contain is legitimate, genuine, and
accurate.

3. Why auditing is important?

Answer – An audit is important as it provides credibility to a set of financial statements and gives the
shareholders confidence that the accounts are true and fair. It can also help to improve a company's
internal controls and systems.

4. What is meant by "criteria" in the context of assurance engagement?

Answer – Suitable criteria are required for reasonably consistent measurement or evaluation of an
underlying subject matter within the context of professional judgment. Without the frame of reference
provided by suitable criteria, any conclusion is open to individual interpretation and misunderstanding.
Suitable criteria are context-sensitive, that is, relevant to the engagement circumstances.