This case highlights the potential for fraudulent cash balance confirmation responses and the need to authenticate the responses, and the potential need to obtain additional corroborating evidence. Further, the case introduces students to the benefits of using electronic confirmations to authenticate confirmation responses.
While AICPA U.S. audit standards (AU-C 505) require confirmation of accounts receivable except under unique circumstances, auditors are currently not required to confirm cash balances. Interestingly, the Public Company Accounting Oversight Board (PCAOB) is currently considering requiring cash balance confirmations (PCAOB 2009). Further, motivated by technology advances and the increased use of electronic cash balance confirmations following the Parmalat fraud case, this case provides students with an understanding of why electronic cash confirmations are beneficial.
Our grading scheme assigned five points to each question based on the key points.1 The case contains several open-ended questions, thus the solutions provided are not all-inclusive. Key points...
