Response to the following problem:
Tim Flynn is the engagement manager for the audit of O'Donnell Enterprises. Tim is currently planning tests of details of balances for accounts receivable and is considering the use of electronic confirmation requests to improve response rates. The historical response rate to written confirmation requests sent to O'Donnell's customers has been below 50% and Tim believes they can increase that to over 80% using electronic requests. Tim is considering two different options. The first option is to use email confirmation requests with requests emailed directly to customers and the customers emailing responses directly to the audit firm. The second option is to use direct access to customer's electronic records through website links for O'Donnell's largest customers, and then written requests to the remaining customers.
Required:
a. What factors does Tim need to consider in deciding whether to use written confirmation requests, email requests, or direct access to electronic records?
b. How will the audit firm ensure the reliability of the responses?
For example, how might they verify the email addresses or the reliability of the electronic records? Who should provide the email addresses for the email confirmations, or the website links for direct access to electronic records?