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Which two procedures do external auditors use to gain confidence in the quality of a company's financial reporting?

Rationale

External auditors examine records to support balances and transactions and obtain confirmations from third parties the company does business with.

These procedures are essential for external auditors to verify the accuracy and completeness of a company’s financial reporting. By examining records and obtaining third-party confirmations, auditors can gather sufficient evidence to support their audit opinions.

A (Examine records to support balances and transactions) CORRECT

This procedure involves reviewing financial records such as invoices, receipts, and journal entries to verify that reported amounts are accurate and consistent. This examination helps auditors assess the reliability of the financial statements, ensuring that they present a true and fair view of the company's financial position.

B (Conduct a customer satisfaction survey) YOUR ANSWER

While customer satisfaction surveys can provide valuable insights into a company's performance from a consumer perspective, they do not directly assess the quality of financial reporting. This procedure is more relevant to marketing and customer relations rather than financial auditing, which focuses on verifying financial data and compliance.

C (Perform a marketing analysis to determine product demand) YOUR ANSWER

Similar to customer satisfaction surveys, conducting a marketing analysis is not relevant to the audit process. This procedure aims to evaluate market conditions and consumer preferences rather than verifying financial statements or ensuring the integrity of financial reporting.

D (Obtain confirmations from third parties the company does business with) CORRECT

Obtaining confirmations from third parties is a critical audit procedure. This involves direct verification from external sources, such as banks or suppliers, to corroborate account balances and transactions reported by the company. This adds an additional layer of assurance regarding the validity of the financial information.

E (Poll the public regarding the company's external image) YOUR ANSWER

Polling the public about the company's image is not relevant to the financial reporting process. This procedure is more aligned with public relations and corporate reputation management rather than providing evidence for the accuracy of financial statements.

Conclusion

To assess the quality of a company's financial reporting, external auditors rely on examining records that support balances and transactions, as well as obtaining confirmations from third parties. These procedures are foundational to the audit process, ensuring that the financial statements presented to stakeholders are both accurate and reliable. Other options, while potentially useful in different contexts, do not contribute directly to the verification of financial reporting quality.

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