Document ID: chunk:federal_register_of_legislation:F2021C01273:reg:3:p5
Version: federal_register_of_legislation:F2021C01273
Segment Type: reg
Provision Reference: reg 3 (pt 5/10)
Character Range: 17803–21125

to the assertion;

(b)                The population of items subject to negative confirmation procedures comprises a large number of small, homogeneous, account balances, transactions or conditions;

(c)                A very low exception rate is expected; and

(d)                The auditor is not aware of circumstances or conditions that would cause recipients of negative confirmation requests to disregard such requests.

Evaluating the Evidence Obtained

16.               The auditor shall evaluate whether the results of the external confirmation procedures provide relevant and reliable audit evidence, or whether further audit evidence is necessary.
(Ref: Para A24-A25)

* * *

Application and Other Explanatory Material

External Confirmation Procedures

Determining the Information to Be Confirmed or Requested (Ref: Para. 7(a))

A1.             External confirmation procedures frequently are performed to confirm or request information regarding account balances and their elements.  They may also be used to confirm 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."

Selecting the Appropriate Confirming Party (Ref: Para. 7(b))

A2.             Responses to confirmation requests provide more relevant and reliable audit evidence when confirmation requests are sent to a confirming party the auditor believes is knowledgeable about the information to be confirmed.  For example, a financial institution official who is knowledgeable about the transactions or arrangements for which confirmation is requested may be the most appropriate person at the financial institution from whom to request confirmation.

Designing Confirmation Requests (Ref: Para. 7(c))

A3.             The design of a confirmation request may directly affect the confirmation response rate, and the reliability and the nature of the audit evidence obtained from responses.

A4.             Factors to consider when designing confirmation requests include:

           * The assertions being addressed.

           * Specific identified risks of material misstatement, including fraud risks.

           * The layout and presentation of the confirmation request.

           * Prior experience on the audit or similar engagements.

           * The method of communication (for example, in paper form, or by electronic or other medium).

           * Management's authorisation or encouragement to the confirming parties to respond to the auditor.  Confirming parties may only be willing to respond to a confirmation request containing management's authorisation.

           * The ability of the intended confirming party to confirm or provide the requested information (for example, individual invoice amount versus total balance).

A5.             A positive external confirmation request asks the confirming party to reply to the auditor in all cases, either by indicating the confirming party's agreement with the given information, or by asking the confirming party to provide information.  A response to a positive confirmation request ordinarily is expected to provide reliable audit evidence.  There is a risk, however, that a confirming party may reply to the confirmation request without verifying that the