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Nature And Timing Of The Audit Procedure

The nature and timing of the audit procedures to be used may be affected by the fact that some of the accounting data and other information may be available only in electronic form or only at certain points or periods in time.

Source documents, such as purchase orders, bills of lading, invoices, and checks, may be replaced with electronic messages. For example, entities may use electronic commerce or image processing systems. In electronic commerce, the entity and its customers or suppliers use connected computers over a public network, such as the Internet, to transact business electronically. Purchasing, shipping, billing, cash receipt, and cash disbursement transactions are often consummated entirely by the exchange of electronic messages between the parties. In image processing systems, documents are scanned and converted into electronic images to facilitate storage and reference, and the source documents may not be retained after conversion.

Certain electronic information may exist at a certain point in time. However, such information may not be retrievable after a specified period of time if files are changed and if backup files do not exist. An entity's data retention policies may require the auditor to request retention of some information for the auditor's review or to perform audit procedures at a time when the information is available.

 

External confirmation as substantive procedures

 this is external confirmations gained through substantive procedure .

The auditor shall consider whether external conÔ¨Ārmation procedures are to be performed as substantive audit procedures

following are the Situations where external confirmation procedures may provide relevant audit evidence in responding to assessed risks of material misstatement include:

1

Bank balance

Bank balances and other information relevant to banking relationships.

 

2

Accounts Recevable

Accounts receivable balances and terms

3

Inventory in hand of third party

Inventories held by third parties at bonded warehouses for processing or on consignment.

4

Title deeds of property with third party

Property title deeds held by lawyers or financiers for safe custody or assecurity.

i

Investment

Investments held for safekeeping by third parties, or purchased from stockbrokers but not delivered at the balance sheet date.

ii

Amount with lenders

Amounts due to lenders, including relevant terms of repayment and restrictive covenants.

iii

Accountspayble

Accounts payable balances and terms

2

 

Although external confirmations may provide relevant audit evidence relating to  certain  assertions,  there  are  some  assertions  for  which  external confirmations provide less relevant audit evidence.

3

Other evidence

The auditor may determine that external confirmation procedures performed for one purpose provide an opportunity to obtain audit evidence about other matters.Such considerations may influence the auditor’s decision about whether to perform external confirmation procedures.

4

Assisting factor for substantive procedure

Factors  that  may  assist  the  auditor  in  determining  whether  external confirmation procedures are to be performed as substantive audit procedures include:

I

More reliable

The confirming party’s knowledge of the subject matter - responses

may be more reliable if provided by a person at the confirming party who  has  the  requisite  knowledge  about  the information  being confirmed.

ii

willingness of the intended confirming party to respond

The ability or willingness of the intended confirming party to respond for example, the confirming party: may not accept responsibility for responding to a confirmation request; may consider responding too costly or time consuming;may have concerns about the potential legal liability resulting from responding;may account for transactions in different currencies; may operate in an environment where responding to confirmation requests is not a significant aspect of day-to-day operations.In such situations, confirming parties may not respond, may respond in a casual manner or may attempt to restrict the reliance placed on the response.

iii

objectivity of the intended confirming party

The objectivity of the intended confirming party - if the confirming

party is a related party of the entity, responses to confirmation requests may be less reliable

 

 

 

Factors that may assis the audit or in determining whether external conÔ¨Ārmation procedures are to be performed as substantive audit procedures:

Factors that may assist the auditor in determining whether external conÔ¨Ārmation procedures are to be performed as substantive audit procedures include:

 

1

The conÔ¨Ārming party‚Äôs knowledge of the subject matter ‚Äď

The conÔ¨Ārming party‚Äôs knowledge of the subject matter responsesmay be more reliable if provided by a person at the conÔ¨Ārming party who has the requisite knowledge about the information beingconÔ¨Ārmed.

 

2

The ability or willingnessof the intended conÔ¨Ārming party to respond

The ability or willingnessof the intended conÔ¨Ārming party to respond ‚Äď for example, the conÔ¨Ārmingparty:

may not accept responsibility for responding to a conÔ¨Ārmationrequest;

may consider responding too costly or timeconsuming;

may have concerns about the potential legal liability resulting from responding;

i.may account for transactions in different currencies;or

ii.may operate in an environment where responding to conÔ¨Ārmation requests is not a signiÔ¨Ācant aspect of day-to-dayoperations.

In such situations, conÔ¨Ārming parties may not respond, may respond in a casualmannerormayattempttorestricttherelianceplacedontheresponse.

3

The objectivity of the intended conÔ¨Ārming party

The objectivity of the intended conÔ¨Ārming party ‚Äď if the conÔ¨Ārming party is a related party of the entity, responses to conÔ¨Ārmation requests may beless reliable.

 

Definition Of Other Important Terms in external confirmational confirmation

1

Exception

 

A response that indicates a difference between information requested to be confirmed, or contained in the entity's records, and information provided by the confirming party.

2

External confirmation

 

Audit evidence obtained as a direct written response to the auditor from a third party (the confirming party), either in paper form or by electronic or other medium .

3

Negative confirmation request

A request that the confirming party will respond directly to the auditor only if there is negative respone.

4

Non-response

Confirming party fails to respondor a confirmation request returned undelivered.

5

Positive confirmation request

 

Confirming party response to auditor in any cases whether positive or negatives.If confirming party agrres then too will confirm if disagrees then too will confirm.if in stipulated time auditor does not get confirmation then he may semd additional confirmation request.

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