Justify with reason, whether following statement is true or false.
a) Reducing assurance engagement risk to zero is very rare.
b) Balance confirmation from debtors/creditors can only be obtained at the end of the financial year.
The statement is true. Reducing assurance engagement risk to zero is very rare because of the following reasons:
The use of selective testing;
The inherent limitations of internal control;
The fact that much of the evidence available to practitioner is persuasive rather than conclusive; and
The use of judgment in gathering and evaluating evidence and framing conclusions based on that evidence.
The statement is false. Direct confirmation of balances from debtors/creditors in respect of balances standing in their accounts at end of the financial year end is perhaps the best method of ascertaining whether the balances are genuine accurately stated and undisputed where internal control system is relatively weak. The conformation date, methods of obtaining confirmation etc. are to be determined the auditor. Debtors/creditors may be requested to confirm balance either as at the date of balance sheet or any other selected date which reasonably close to the date of balance sheet. The date should be settled the auditor in consultation with the entity. Therefore, it is not necessary that balances of debtors/creditors should be obtained and verified at the end of financial year.