External confirmation is a crucial procedure in auditing that involves obtaining direct

verification from independent third parties regarding certain assertions made by the
client. This verification helps auditors gather evidence to support their audit opinion and
ensure the reliability of the financial statements. The procedure for external
confirmation typically involves several steps:

Determining the Information to be Confirmed:

​ Before sending out confirmation requests, auditors need to identify the specific
information they need to confirm. This could include accounts receivable
balances, accounts payable balances, bank balances, loan balances, inventory
quantities, contracts, or other relevant information. The information to be
confirmed should be material to the financial statements and related assertions.

Selecting the Appropriate Parties:

​ Once the information to be confirmed is determined, auditors need to identify the

appropriate parties from whom confirmation should be obtained. These parties
are typically external to the client and may include customers, suppliers, financial
institutions, lenders, attorneys, or other relevant parties. The selection of parties
should be based on their relevance to the specific assertions being tested and
their independence from the client.

Designing the Confirmation Requests:

​ Confirmation requests should be carefully designed to elicit the required

information from the third parties. The requests should be clear, concise, and
specific, providing all necessary details for the recipient to understand the nature
of the request and provide an accurate response. The confirmation requests
should include information such as the client's name, account number, the period
covered, the amount or details to be confirmed, and instructions for responding
directly to the auditor.

Sending the Requests:

​ Once the confirmation requests are prepared, they are sent out to the selected
parties. Auditors typically send the requests via mail, email, or secure online
portals, depending on the preferences and capabilities of the recipients. The
requests should be sent well in advance of the audit report issuance date to
allow sufficient time for responses to be received and evaluated.
Follow-up Requests:

​ In some cases, recipients may not respond to the initial confirmation request or
may provide incomplete or unclear responses. In such instances, auditors may
need to send follow-up requests to remind recipients of the request and request
clarification or additional information. Follow-up requests should be sent
promptly to minimize delays in the audit process and ensure that all necessary
information is obtained.

Overall, the procedure for external confirmation involves careful planning,

communication, and follow-up to ensure that auditors obtain reliable and relevant
information from independent third parties to support their audit conclusions. Proper
execution of this procedure enhances the quality and credibility of the audit process and
ultimately contributes to the reliability of the financial statements.

When management refuses to allow the auditor to send confirmation letters, it raises
concerns about the reliability and completeness of the financial information provided
by the client. In such cases, auditors need to carefully address the situation by
following a structured approach:

Examine Management’s Reasons for Refusal:

​ The auditor should first understand and document the reasons provided by
management for refusing external confirmation requests. These reasons could
vary, such as confidentiality concerns, potential disruption to customer
relationships, or other business reasons. It's essential for the auditor to assess
the validity of these reasons and determine whether they are reasonable.

Assess Implications of Refusal:

​ The auditor should evaluate the implications of management's refusal on the

audit engagement. Refusal to provide confirmation may indicate a lack of
cooperation or transparency, which could heighten audit risk. It may also signal
potential issues with the reliability of financial reporting or the existence of fraud
or material misstatements.

Perform Alternative Audit Procedures:

​ In response to management's refusal, auditors must perform alternative audit
procedures to obtain sufficient and appropriate audit evidence. These alternative
procedures could include:
● Analytical procedures: Analyzing financial data and relationships for
consistency and reasonableness.
● Substantive testing: Performing detailed testing of account balances,
transactions, or other financial information through methods such as
sampling, reperformance, or examination of supporting documentation.
● Inquiry and observation: Directly questioning management or observing
processes and activities to gather additional information.
● Review of documentation: Examining contracts, agreements, invoices, and
other relevant documents to corroborate financial information.