EXTERNAL CONFIRMATIONS

1. External confirmation is the process of obtaining and evaluating audit evidence through a direct

communication from a third party in response to a request for information about a particular item

affecting assertions made by management in the financial statements.

Use of positive and negative external confirmations

2. A positive external confirmation request asks the respondent to reply to the auditor in all cases

either by indicating the respondent’s agreement with the given information, or by asking the

respondent to fill in the information.

3. A negative external confirmation request asks the respondent to reply only in the event of

disagreement with the information provided in the request.

4. Negative confirmation requests may be used to reduce the risk of material misstatement to an

acceptable level when:

● The assessed risk of material misstatement is lower.

● A large number of small balances are involved.

● A substantial number of errors are not expected.

● The auditor has no reason to believe that respondents will disregard these requests.

5. When performing confirmation procedures, the auditor should maintain control over the process

of selecting those to whom a request will be sent, the preparation and sending of confirmation

requests, and the responses to those requests.

6. The auditor should perform alternative procedures where no response is received to a positive

external confirmation request. The alternative audit procedures should be such as to provide the

evidence the evidence about the financial statement assertions that the confirmation request was

intended to provide.

7. When the auditor forms a conclusion that the confirmation process and alternative procedures

have not provided sufficient appropriate audit evidence regarding an assertion, the auditor should

undertake additional procedures to obtain sufficient audit evidence.

8. The auditor should evaluate whether the results of the external confirmation process together

with the results from any other procedures performed, provide sufficient appropriate audit

evidence regarding the assertion being audited.

PSA 230 (Revised)

AUDIT DOCUMENTATION

1. The auditor should prepare, on a timely basis, audit documentation that provides:

21● a sufficient and appropriate record of the basis for the auditor’s report; and

● evidence that the audit was performed in accordance with PSAs and applicable legal and

regulatory requirements

2. “Audit documentation” means the record of audit procedures performed, relevant audit

evidence obtained, and conclusions the auditor reached (terms such as “working papers” or

“work papers” are also sometimes used).

3. “experience auditor” means an individual (whether internal or external to the firm) who has

reasonable understanding of

● Audit processes;

● PSAs and applicable legal and regulatory requirements

● The business environment in which the entity operates; and

● Auditing and financial reporting issues relevant to the entity’s industry

4. Audit documentation may be recorded on paper or on electronic or other media

5. The auditor should prepare the audit documentation so as to enable an experiences auditor,

having no precious connection with the audit, to understand:

● the nature, timing , and extent of the audit procedures performed to comply with PSAs

and applicable legal and regulatory requirements

● the results of the audit procedures and the audit evidence obtained; and

● significant matters arising during the audit and the conclusions reached thereon

6. in documenting the nature, timing and extent of audit procedures performed, the auditor should

record the identifying characteristics of the specific items or matters beig tested

7. the auditor should document discussions of significant matters with management and others on

a timely basis

8. where, in exceptional circumstances, the auditor judges it necessary to depart from a basic

principle or an essential procedure that is relevant in the circumstances of the audit, the auditor

should document how the alternative audit procedures performed achieved the objective of the
audit, and, unless otherwise clear, the reasons for the departure

9. the auditor should record:

● who performed the audit work and the date such work was completed

● who reviewed the audit work performed and the date and extent of such review