What are the factors that are to be considered while designing a confirmation request?
SA 505- “EXTERNAL CONFIRMATIONS” MEANING: External Confirmation means Audit Evidence obtained as a direct written response to the auditor from a third party (the confirming party), in paper form, or by electronic or other medium. SCOPE OF THIS SA: This
Standard on Auditing (SA) deals with the auditor’s use of external confirmation procedures to obtain audit evidence in accordance with the requirements of SA 330 and SA 500(Revised). Hence, this SA suggests the auditor to obtain confirmation directly from the third party in writing. PROCESS OF EXTERNAL CONFIRMATION: FORM OF EXTERNAL CONFIRMATION: EXAMPLES WHERE EXTERNAL CONFIRMATION IS USED?
MANAGEMENT’S REFUSAL TO ALLOW THE AUDITOR TO SEND A CONFIRMATION REQUEST:
FACTORS TO BE CONSIDERED: The factors to be considered when designing confirmation requests include:
FOLLOW-UP ON CONFIRMATION REQUESTS: The auditor may send an additional confirmation request when a reply to a previous request has not been received within a reasonable time. For example, the auditor may, having re-verified the accuracy of the original address, send an additional or follow-up request. WHEN THESE CONFIRMATION LETTERS ARE GENERALLY SENT? The auditor may request external confirmations either:
[toc-this] PrinciplesThe higher the auditor’s assessment of the risk of [link title="material" link="%2Faware%2FGAP%2FPages%2FCA-FA%2FPlanning%2FMateriality.aspx" /] misstatement, the more reliable and relevant is the[link title="audit%20evidence" link="%2Faware%2FGAP%2FPages%2FAudit-evidence.aspx" /] which (s)he seeks from substantive procedures, which may include external confirmation. External confirmation is the process of obtaining and evaluating audit evidence through a representation directly from a third party, in response to a request from the auditor for information about a particular item. Such audit evidence may, together with audit evidence from other audit procedures, assist in reducing the[link title="assessed%20risk" link="%2Faware%2FGAP%2FPages%2FCA-FA%2FPlanning%2FAudit-risk-and-risk-assessment-procedures.aspx" /] to an acceptably low level. External confirmations are frequently used to confirm the following:
Such confirmations may provide audit evidence regarding some assertions, but not others. The auditor should consider the objective of the confirmation, i.e. the particular assertion(s) to be tested. Having decided whether to use positive or negative external confirmation requests, the auditor should apply appropriate audit procedures when
Positive or negative external confirmation requestsThe auditor may use positive or negative confirmation requests or a combination thereof.
InstructionsExternal confirmation proceduresThe auditor controls the external confirmation requests and responses.The auditor should:
The auditor's response if management refuses to allow the auditor to send a confirmation requestConfirmation requests typically include management’s authorisation to the respondent to disclose the information to the auditor. When the auditor seeks to confirm certain balances or information, and management requests him/her not to, the auditor should evaluate the reasonableness of such a refusal; evaluate the implications for the auditor's assessment of risk and the nature, timing and extent of audit procedures; and apply alternative audit procedures to obtain sufficient relevant and reliable audit evidence. If the auditor concludes that management's refusal is unreasonable, or is unable to obtain audit evidence from alternative audit procedures, the auditor should communicate with those charged with governance and consider the possible impact on his/her conclusions and opinion. Considering the results
The auditor should consider the response’s authenticity and perform audit procedures to dispel any concern that external confirmations received may not be reliable. If (s)he determines the response is not reliable, the auditor should evaluate the implications for risk assessment and for the nature, timing and extent of audit procedures.
If no response is received to a positive external confirmation request, the auditor should perform alternative audit procedures to provide audit evidence for the assertions concerned. If the auditor considers that a positive confirmation is required to provide sufficient, relevant and reliable audit evidence, and does not receive it, (s)he should determine the implications for the audit.
The auditor should investigate exceptions to determine if they represent misstatements. If an exception indicates a misstatement or irregularity in the entity’s records, the auditor determines the reasons, assesses whether it has a material effect, and reconsiders the nature, timing and extent of the audit procedures needed. Evaluating the evidenceThe auditor should evaluate whether the results of the external confirmation process, together with the results from any other audit procedures performed, provide sufficient, relevant and reliable audit evidence regarding the assertion being audited, or whether performing further audit procedures is necessary. [/toc-this] Which of the following are factors to consider when designing accounts receivable confirmation requests?Factors such as the form of the confirmation request, prior experience on the audit or similar engagements, the nature of the information being confirmed, and the intended respondent should affect the design of the requests because these factors have a direct effect on the reliability of the evidence obtained through ...
When designing the confirmation request the auditor should consider the following factors?. 24 When designing confirmation requests, the auditor should consider the types of information respondents will be readily able to confirm, since the nature of the information being confirmed may directly affect the appropriateness of the evidence obtained as well as the response rate.
What are the characteristics of a confirmation?The four characteristics of the definition of a confirmation are:. Receipt.. Written or oral response.. From independent third party.. Requested by the auditor.. What are the three types of confirmation?The three types of confirmation forms are positive confirmation, blank confirmation forms, and negative confirmation.
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