A survey examination of the objective of accounts receivable confirmation and the behavior pattern of confirmation respondents
According to the Statement on Auditing Procedure and subsequent AICPA pronouncements, the two types of confirmation requests are the positive confirmation and the negative confirmation. An auditor should investigate any exceptions reported by debtors regardless of the form of the confirmation. Some follow-up work must also be carried out by the auditor when any positive confirmation letters are not returned by customers. In order to evaluate the effectiveness of respective confirmation requests, specific audit objectives to be achieved by the auditor through this procedure need to be ascertained. The behavior of respondents has a moderating effect on the effectiveness of confirmations and is probed based on the response effect model. The theoretical framework for this study assumes that if the auditor's major objective for confirming with customers is to disclose irregularities in the accounting data, the effectiveness of various forms of confirmation requests should be a function of their ability to detect irregularities. In other words, audit objectives should be incorporated into the process to evaluate the effectiveness of confirmations. The response effect describes how the behavior of respondents may moderate the effectiveness of confirmation requests. Besides the task structure, two other sources of response effect are the saliency of the requested information perceived by the respondents and the memory problem. Two mail surveys were independently conducted on two entirely different groups of subjects. The first survey sampled auditors at public accounting firms in Houston and San Antonio, including four "Big Eight" accounting firms and one regional firm. The second survey was sent to a randomly selected group of controllers whose companies were listed on Dun & Bradstreet's "Million Dollar Directory". The statistical technique of factor analysis was chosen to form constructs for hypotheses testing so that (1) no excessive dependence was placed on particular questions, and (2) the principle of parsimony could be achieved. The findings support the hypothesis that the detection of irregularities is the objective of confirming accounts receivable with debtors. However, contradictory results are found regarding the importance of disclosing clerical improprieties by means of confirmations. The respondents, on the other hand, do not respond to positive requests more than other forms. When they do not respond, it is because that the information requested is not readily available to them. The optimal type of confirmation requests is the one that enables the greatest detection of irregularities by auditors when maximizing the level of information available for respondents to respond.