Document ID: chunk:federal_register_of_legislation:F2021C01250:reg:27:p19
Version: federal_register_of_legislation:F2021C01250
Segment Type: reg
Provision Reference: reg 27 (pt 19/23)
Character Range: 60531–63830

held by lawyers or financiers for safe custody or as security.

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

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

           * Accounts payable balances and terms.

A51.         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. For example, external confirmations provide less relevant audit evidence relating to the recoverability of accounts receivable balances, than they do of their existence.

A52.         The auditor may determine that external confirmation procedures performed for one purpose provide an opportunity to obtain audit evidence about other matters.  For example, confirmation requests for bank balances often include requests for information relevant to other financial report assertions. Such considerations may influence the auditor's decision about whether to perform external confirmation procedures.

A53.         Factors that may assist the auditor in determining whether external confirmation procedures are to be performed as substantive audit procedures include:

           * 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.

           * 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; or

                   + 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.

           * 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.

Substantive Procedures Related to the Financial Report Closing Process (Ref: Para. 20(b))

A54.         The nature, and also the extent, of the auditor's substantive procedures related to the financial statement closing process depends on the nature and complexity of the entity's financial reporting process and the related risks of material misstatement.

Substantive Procedures Responsive to Significant Risks (Ref: Para. 21)

A55.         Paragraph 21 of this Auditing Standard requires the auditor to perform substantive procedures that are specifically responsive to risks the auditor has determined to be significant risks.  Audit evidence in the form of external confirmations received directly by the auditor from appropriate confirming parties may assist the auditor in