Chapter 14: External Confirmation

Question 1

Define External Confirmation?

Answer 1

Obtaining evidence directly from a third party in written form.

Question 2

Situation where External Confirmation is used?

Answer 2

Debtors, Creditors,
Banks, Lawyers (100%, No alternative)

Question 3

Can confirmation used as evidence?

Answer 3

1) Highly reliable evidence (written, external and direct).
2) Provide evidence about Existence, Rights and Obligation,
Accuracy, Valuation and allocation.
3) No evidence about Completeness.

Question 4

Situations where auditor Omit external confirmation?

Answer 4

1. Risk is low, or
2. Balance is immaterial, or
3. Evidence obtained from other procedures, or
4. management requests and request is reasonable.

Question 5

Procedures in Using Confirmation Request?

Answer 5

1. Decide timing (interim or final).
2. Decide parties (e.g. major parties, or high risk parties).
3. Decide information (closing balance + other information)
4. Decide type (positive or negative)
5. Obtain authorization
6. Send letters.
7. Appropriate procedures on replies.
8. Summary and conclusion.
   Procedures at year-end if confirmation used at interim date:
9. Compare individual balances.
10. For intervening transactions, perform:
    a. tests of controls (on sample), and
    b. tests of details (on major items).
11. Send confirmation letter (if necessary).