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External Confirmations

PSA 505
Generalizations on Audit
Evidence

If from independent outside sources: more


reliable
If generated internally: more reliable

If in the form of documents and written


representations :more reliable
If obtained directly by the auditor: more reliab
External Confirmation Procedures

Determinin Selecting
g the Designing
the
information the Sending
appropria
to be confirmati the
confirmed te
on requests
or confirmin
requests
requested g party

3
External Confirmation Procedures

Determini Selecting
ng the Designing
the
informatio the Sending
appropria
n to be confirmati the
te
confirmed on requests
or confirmin
requests
requested g party

4
External Confirmation

Audit evidence obtained as a direct


It is frequently performed to confirm or
response from a third party (the
request information regarding account
confirming party in paper form,
balances and their elements
electronic or other medium
Determinin
g the
informatio
n to be
confirmed
or
requested
External Confirmation Procedures

Determini Selecting
ng the Designing
the
informatio the Sending
appropria
n to be confirmati the
te
confirmed on requests
or confirmin
requests
requested g party

6
Confirmation requests
are sent a confirming
party the auditor
believes is
knowledgeable about
Selecting
the
the information to be
appropria
te confirmed
confirmin
g party
External Confirmation Procedures

Determini Selecting
ng the Designing
the
informatio the Sending
appropria
n to be confirmati the
te
confirmed on requests
or confirmin
requests
requested g party

8
1 The assertions being addressed

2 Specific identified risks of material

Factors to
consider
3 The layout and presentation

4 Prior experience on the audit or similar engagements

5 Management’s authorization or encouragement

The ability of the confirming party to confirm or


Designing 6 provide information
the
confirmati
on
requests
Different Confirmation Request

Positive Confirmation
Letter

Negative Confirmation Letter


Different Confirmation Request

A request that the confirming party


respond directly to the auditor

Positive Confirmation
Letter
It indicates whether the confirming
party agrees or disagrees with
information in the request or providing
the requested information
Different Confirmation Request

A request that the confirming party


respond directly to the auditor ONLY if
the confirming party DISAGREES with
the information provided in the
request.
Negative Confirmation
Letter
It is designed for use in situations
where a client company's internal
controls are already considered to be
quite strong
External Confirmation Procedures

Determini Selecting
ng the Designing
the
informatio the Sending
appropria
n to be confirmati the
te
confirmed on requests
or confirmin
requests
requested g party

13
The auditor may send
an additional
confirmation request
when a reply to a
previous request has
not been received
Sendin
g the
within a reasonable
request
s time
Management Refusal… Perform
Evaluate alternative
the audit
procedures
implications
designed to
of obtain
Inquire as manageme relevant
to nt’s refusal and reliable
manageme on the audit
nt’s auditor’s evidence
reasons for assessment
the refusal of the
relevant
risks of
material
Results of External Confirmation
Procedures

 When Responses Necessary  If responses will not be


available, determine the
implications for the audit
 Reliability of and the auditor’s opinion
Responses  evaluate the implications on the
assessment of the relevant risks of
material misstatement
Reliability of Responses
 If there are doubts as to
confirmations, obtain further audit
evidence to resolve those doubts
indicate doubts as
Reliability of Responses

Factors that may


to reliability
1 Received by the auditor indirectly

Appeared not to come from the


2 originally intended confirming
party
EX
AM
PLE 1
S Responses are received electronically

2
Confirming Party uses third party
to coordinate
Evaluating Evidence
Obtained
The auditor shall evaluate
whether the results
provide relevant and
reliable audit evidence, or
whether performing
further audit procedures is
necessary
Results of External Confirmation
Procedures

 When Responses Necessary  If responses will not be


available, determine the
implications for the audit
 Reliability of and the auditor’s opinion
Responses  evaluate the implications on the
assessment of the relevant risks of
material misstatement and revise
Reliability of Responses the assessment

 If there are doubts as to


confirmations, obtain further audit
evidence to resolve those doubts
Initial Audit Engagements
– Opening Balances
PSA 510
“ This PSA deals with the auditor’s responsibilities
relating to opening balances when conducting an
initial audit engagement. In addition to financial
statement amounts, opening balances include
matters requiring disclosure that existed at the
beginning of the period

Scope of the PSA



“ This PSA deals with the auditor’s responsibilities
relating toopening balances when conducting
an initial audit engagement. In addition to financial
statement amounts, opening balances include
matters requiring disclosure that existed at the
beginning of the period

Scope of the PSA



Definitions…
Account balances that exist at the
beginning of the period.

Based upon the closing balances of


the prior period and reflects the
Opening Balances effects if transactions and events
prior periods and accounting policies
in the prior period

Include matters requiring disclosure


that existed at the beginning of the
period
“ This PSA deals with the auditor’s responsibilities
relating to opening balances when conducting an
initial audit engagement. In addition to financial
statement amounts, opening balances include
matters requiring disclosure that existed at the
beginning of the period

Scope of the PSA



“ This PSA deals with the auditor’s responsibilities
relating toopening balances when conducting
an initial audit engagement. In addition to financial
statement amounts, opening balances include
matters requiring disclosure that existed at the
beginning of the period

Scope of the PSA



Definitions…

The FS for the prior period were


not audited

Initial Audit
Engagement
The FS for prior period were
audited by a predecessor auditor
Definitions…

Predecessor Auditor

The auditor from different audit firm who


audited the financial statements of an
entity in the prior period and who has
been replaced by the current auditor
Definitions…

Predecessor Auditor

The auditor from different audit firm who


audited the financial statements of an
entity in the prior period and who has
been replaced by the current auditor
Definitions…

Predecessor Auditor

The auditor from different audit firm who


audited the financial statements of an
entity in the prior period and who has
been replaced by the current auditor
Objectives…
Opening balances contain misstatements that materially
affect the current period’s financial statements

Appropriate accounting policies reflected in the opening


balances have been consistently applied in the current
period’s financial statements
Audit
Opening Balances
Procedures…
1 the auditor shall read the most recent financial
statements

2 Determining whether the opening balances reflect the


application of appropriate accounting policies

3 Perform additional audit procedures as are appropriate in


the circumstances
Audit
Procedures…
Consistency of Accounting Policies

4 Obtain sufficient appropriate evidence about whether the


accounting policies have been consistently applied

5 Obtain sufficient appropriate evidence whether changes in


accounting policies have been properly accounted,
presented and disclosed
Audit
Procedures…
Relevant Information in the Predecessor
Auditor’s Report

6 If there was a modification to the opinion, evaluate the


effect of the matter caused the modification
Audit Conclusion and
Reporting…
Opening Balances

1 Auditor is unable to obtain sufficient appropriate


evidence regarding the opening balances

2 Auditor concludes that the opening balances contain a


misstatement that materially affects the current period FS

Issue and ADVERSE opinion or QUALIFIED opinion


Audit Conclusion and
Reporting…
Consistency of Accounting Policies

3 If the current period’s accounting policies are not


consistently applied in relation to opening balances

4 If the change in accounting policies is not


accounted properly

Issue and ADVERSE opinion or QUALIFIED opinion


Audit Conclusion and
Reporting…
Modification to the Opinion in the Predecessor Auditor’s
Report

5 If what caused the modification to the auditor’s opinion is


still relevant and material to current period FS

Issue and ADVERSE opinion or QUALIFIED opinion

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