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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] When should negative confirmations be used?Negative confirmation is typically used when the accounting controls of a company have historically had very few errors and are thus considered to be strong. The company is asked to double-check the numbers and only confirm if there is a discrepancy.
Under what circumstances an auditor may decide to use negative confirmation requests?Negative confirmation requests may be used to reduce audit risk to an acceptable level when (a) the combined assessed level of inherent and control risk is low, (b) a large number of small balances is involved, and (c) the auditor has no reason to believe that the recipients of the requests are unlikely to give them ...
What are positive and negative confirmations used by an auditor?Positive confirmations are usually associated with the audit of receivables, payables, and debt arrangements. The other type of confirmation is a negative confirmation, where the third party only has to respond if there is a discrepancy between the records.
What is the difference between positive confirmation and negative confirmation?Negative Confirmation. While positive confirmation requires supporting information despite the accuracy of the original records, negative confirmation requires a response only if there is a discrepancy.
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