External Confirmation Procedures

When using external confirmation procedures, the auditor should maintain control over external confirmation requests.

External confirmation procedure includes following .

a	Information to be confirmed or requested	Determining the information to be confirmed. External confirmation procedures frequently are performed to confirm or request information regarding account balances and their elements. They may also be used to confirm the terms of agreements, contracts, or transactions between an entity and other parties, or to confirm the absence of certain conditions, such as a “side agreement”.
b	Selection of party	Selecting the appropriate confirming party;
c	Designing of confirmation requests	Designing the confirmation requests, and properly addressed
d	Sending request and follow up plan	sending the requests, including follow-up requests if needed

Designing Confirmation

factors to consider when designing confirmation requests include the following:

1	Risk of Material misstatement and fraud	Auditor must identify specific item which has possibilities of material misstatement including fraud .
2	Lay out	Auditor must make layout of request and presentation of the request.
3	Use of prior experience of auditor	Auditor must use Prior experience on the audit or similar engagements.
4	Communcation method	Auditor will decide the method of communication to the third paties.for example, in paper form or by electronic or other medium.
5	Management Authorisation	Auditor must check the authorization policy of management to go for third party confirmation.Many time third party responses only after authorization of management.
6	Abilty of third party to confirm	Auditor will check The ability of the third party to confirm or provide the requested information (for example, individual invoice amount versus total balance)

Management’s Refusal To Allow Auditor To Send A Confirmation Request

If management refuses to allow the auditor to send a confirmation request, the auditor shall:

1	Reason for refusal	Auditor must Inquire reasons for the refusal, by management .and seek audit evidence as to their validity and reasonableness;
2	implications of management's refusal	Auditor must Evaluate the implications of management's refusal on the auditor's assessment of the relevant risks of material misstatement, including the risk of fraud, and on the nature, timing and extent of other audit procedure.
3	Alternative audit procedures	Auditor must consider to Perform alternative audit procedures designed to obtain relevant and reliable audit evidence.
d	Conclusion	If the auditor concludes that management's refusal to allow the auditor to send a confirmation request is unreasonable, or the auditor is unable to obtain relevant and reliable audit evidence from alternative audit procedures, the auditor shall communicate with Those Charged With Governance in accordance with SA 260. The auditor also shall determine the implications for the audit and the auditor's opinion in accordance with SA 705.

The use of Assertions

We know the assertion means the claim of management or entity about the information given in the ststement of accounts.Auditor can use these assertion in following ways.

1	Assertion about classes of transactions and events for the period under audit:
2	Assertions about account balances at the period end:
3	Assertions about presentation and disclosure:

1Assertions about classes of transactions and events for the period under audit

Auditor has to check following points for material misstatement in class of transaction and events.

i	Occurrence.	Transactions and events that have been recorded have occurred and pertain to the entity.
ii	Completeness.	All transactions and events that have been incurred must have been recorded
iii	Accuracy	Amounts and other data relating to recorded transactions and events have been recorded appropriately.
iv	Cutoff.	Transactions and events have been recorded in the correct accounting period.
v	Classification.	Transactions and events have been recorded in the proper accounts.

2.Assertions about account balances at the period end:

Auditor has to check following points to check material misstatement in assertion about account balance at the period ends.

Assertions about account balances at the period end:

i	Existence.	Auditor will check whether all Assets, liabilities, and equity interests exist in reality.
ii	Rights and obligations.	Auditor will check The entity holds or controls the rights to assets, and liabilities are the obligations of the entity.
iii	Completeness.	All assets, liabilities, and equity interests that should have been recorded have been recorded.
iv	Valuation and allocation.	Assets, liabilities, and equity interests are included in the financial statements at appropriate amounts and any resulting valuation or allocation adjustments are appropriately recorded.

3-Assertions about presentation and disclosure:

i	Occurred for entity	Disclosed events and transactions have occurred and pertain to the entity.
ii	Completeness	All disclosures that should have been included in the financial statements have been included
iii	Classification and understandability.	Financial information is appropriately presented and described and disclosures are clearly expressed
iv	Accuracy and valuation.	Financial and other information are disclosed fairly with appropriate amounts.

Explore All Chapters