ne STANDARDS ON AUDITING SA 505" External Confirmation :Externat/Confirmation is fear aie pacers) Autos use External confirmation as a means of obtaining audit evidence. Meaning — Direct Written response Auditors ——» Direct ——+ Third Party Positive Confirmation request C@Oherts of Using Positive GReeebion DEH) > Respond or providing the requested information (> esger) Icheonees) > Whether agrees or disagrees withthe information in the request Cove? OSS > Lf Confirming party reply without verifying that information is correct, auditor(educe risk by using Tequests that do not state amounts. )However, use of Blank Confirmation Request result in lower “response rates. Negative confirmation Request > Respond only if disagrees with the information in the request Requirements (External Confirmation Procedure (a) Determining the information to be confirmed or requested. (b) Selecting the appropriate confirming|party.- Knowledgeable person () Desigiing confirmation requests including determining that request ae properly addressed. (@) Send request & follow up on confirmation requests. Loan pankur request Gi) Management refusal to allow to send a confirmation request ( Tnquinl'as to management reasons for refusal & seek audit evidence as to their validity or) sonableness | ate pension auditor's assessment of risk of material misstatement of fraud & NTE of audit procedure x (c) Perform Alternative audit procedure (@) If Auditor conclude management refusal as Unreasonable(6p auditor unable to obtain reliable audit e fom Alterative Audit procedure - it adit & his opinion . @ Sing > ‘Auditors should consider validity grounds) & sess mgt. integrityland/ask mgt. to submit request I Nfat. request not to seek confirmation due to same reasons & Augitoyagrees to mat. request i Z in writ aX rm including reasons} ‘opinion, same is not Valid ~ Modify Report Very old credit balance of trade payable -{ho confirmation available } Identity of trade payable not traceable, s6 itis i > Itmight be a case tha hidden in PY. > Appl ve auiit procedures & not rely entirely on mgt. confirmation > W iffcati BY CA ATUL AGARWAL AIR 1CA FINAL . oO, \ Page 27 j > [sHastion % Clams corkizaration ore not covered ander thes og. © When SP rerggmie the Imparlenre af SA HOF! SM SIV, sN0, 5003) ia) > STANDARDS ON AUDITING (ii) Reliability of Response to confirmation request > If Auditor identifies factors which gives doubts about the reliat ttenolorsoketeedabs > Unreliable Responses Auditor shall > Non Responses - Auditor shall perfornAlternative Audit procedures Byer eat (iv) Exception < Received Meaning ~ Difference between Information requested 10 confirm & information pr confirming party. ‘Auditor shall investigate exception to determine whether or not they ami , he shall obtain (further audit VIE Td Sw isk of fraud rovided by are indicative of misstatements, JT} yy) Qoz(¥) Negative Confirmations It provides es persuasive audit evidence than positive confirmations “6 2¢ os eocedure unl 7 jeyoltorr eo Oe aercar aan tel casided Re uM Gola, (2) Auaitor assess isk of MM as low'® obtain S&A evidence regarding operating effectiveness ” (b) | Popilatioi of items subject to Negative Confirmation comprises large n0- of sal items (©) Very low exception rate i expected (a) “Awaitornot aware'of conditions cause rei [Non response for negative confirmation request does not means there is som segative confirmation request confirming party respond to auditor only ifdisagrees. ‘more likely to respond if information in request isnot in their favor. ‘onfirming party (vi) Examples of Alternative Audit procedures, For accounts‘receivable balances > Bramining sped subsequent ash seins, ship ted = and sales near the period For accounts payable balances > Examining subsequent cash disbursements or comtespondence from third parties, and other records suchas goods received note. — Ca = Ti &s (vii) Situations where External confirmations can be used Dore ==> Bank Balance from bankers (8¢°¥) © Grepery ai © Inventories held by third parties (Fneen}ory) OFnetnwnt Property tile deeds held by third partiest Trophy ) (9 Tewentery ~! gy + Afereceivable balances (0 ; «Ale payable balances (H®) © eo & Tavestments purchased but delivery not taken (“Ewatmnts) © arty Loan from lenders (Ves) Andrey Loan o's share application money Chee Qoqlioten Weary) CD AP Loca FY CA ATUL AGARWAL aD ob Shee Dipel Morey AIR 1.CA FINAL Page 28 WELLE EL> www w yy woe 5 wow wee ewe www STANDARDS ON AUDITING De ‘Assertions being addressed 2) G ‘* Specific identified risk Gf MM/including fraud risk : entation of confirmation request . on audit or similar engagements C nication (paperlelectronicfiny ofbe G)* Mgt. authorization to confirming party to respond teaudifor (respond only if authorize) @+ ‘Ability of confirming party o provide information) Q@ Pmt. Encomogemnt Q CA TUSHAR KALRA —_———— BY CA ATUL AGARWAL, AIR 1CA FINAL Page 29