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
