Thursday, April 21, 2022

ISA (UK) 505: External Confirmations

 The trustworthiness of audit evidence is influenced by its source and nature and is reliant on the unique conditions under which it is gathered, according to ISA (UK) 500. The following generalizations about audit evidence are included in the ISA (UK):

·         When audit evidence is collected from independent sources outside the company, it is more dependable.

·         Direct audit evidence obtained by the auditor is more reliable than indirect or inferred audit evidence.

·         When audit evidence is in documentary form, whether on paper, electronic media, or another medium, it is more dependable.

As a result, audit evidence in the form of external confirmations received directly by the auditor from confirming parties may be more reliable than evidence generated internally by the entity, depending on the conditions of the audit. The purpose of this ISA (UK) is to assist auditors in creating and executing external confirmation procedures in order to collect relevant and credible audit evidence. When implementing external confirmation methods in response to a risk of material misstatement, an auditor's goal is to develop and implement such procedures in order to collect relevant and credible audit evidence.

External confirmation is the process of acquiring and analyzing audit evidence directly from a third party in response to a request for information on a specific item from the auditor. Such audit evidence, when combined with audit evidence from other audit techniques, may help to reduce the evaluated risk to a level that is acceptable. External confirmations are of two types.

Positive confirmation request - A request for the confirming party to react directly to the auditor, either by agreeing or disagreeing with the information in the request or by giving the desired information.

Negative confirmation request — A request that the confirming party reacts immediately to the auditor only if the information provided in the request is incorrect.

·         External confirmations are frequently used to confirm the following:

·         bank balances, loans, guarantees, and other information from bankers;

·         bank accounts opened in connection with imprests (e.g. delegations);

·         amounts held at financial intermediaries at year-end;

·         accounts receivable or accounts payable balances.

Practice:

The auditor should determine if the results of the external confirmation process, along with the results of any other audit processes completed, provide sufficient, relevant, and credible audit evidence for the assertion under scrutiny, or whether more audit procedures are required.

 

 

Reference:      https://bit.ly/3v28dJI

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