Document ID: chunk:federal_register_of_legislation:F2021C01273:reg:3:p9
Version: federal_register_of_legislation:F2021C01273
Segment Type: reg
Provision Reference: reg 3 (pt 9/10)
Character Range: 29134–32331

available to corroborate management's assertion(s) is only available outside the entity.

           * Specific fraud risk factors, such as the risk of management override of controls, or the risk of collusion which can involve employee(s) and/or management, prevent the auditor from relying on evidence from the entity.

Exceptions (Ref: Para. 14)

A21.         Exceptions noted in responses to confirmation requests may indicate misstatements or potential misstatements in the financial statements.  When a misstatement is identified, the auditor is required by ASA 240 to evaluate whether such misstatement is indicative of fraud.[22]  Exceptions may provide a guide to the quality of responses from similar confirming parties or for similar accounts.  Exceptions also may indicate a deficiency, or deficiencies, in the entity's internal control over financial reporting.

A22.         Some exceptions do not represent misstatements.  For example, the auditor may conclude that differences in responses to confirmation requests are due to timing, measurement, or clerical errors in the external confirmation procedures.

Negative Confirmations (Ref: Para. 15)

A23.         The failure to receive a response to a negative confirmation request does not explicitly indicate receipt by the intended confirming party of the confirmation request or verification of the accuracy of the information contained in the request.  Accordingly, a failure of a confirming party to respond to a negative confirmation request provides significantly less persuasive audit evidence than does a response to a positive confirmation request.  Confirming parties also may be more likely to respond indicating their disagreement with a confirmation request when the information in the request is not in their favour, and less likely to respond otherwise.  For example, holders of bank deposit accounts may be more likely to respond if they believe that the balance in their account is understated in the confirmation request, but may be less likely to respond when they believe the balance is overstated.  Therefore, sending negative confirmation requests to holders of bank deposit accounts may be a useful procedure in considering whether such balances may be understated, but is unlikely to be effective if the auditor is seeking evidence regarding overstatement.

Evaluating the Evidence Obtained (Ref: Para. 16)

A24.         When evaluating the results of individual external confirmation requests, the auditor may categorise such results as follows:

(a)                A response by the appropriate confirming party indicating agreement with the information provided in the confirmation request, or providing requested information without exception;

(b)                A response deemed unreliable;

(c)                A non-response; or

(d)                A response indicating an exception.

A25.         The auditor's evaluation, when taken into account with other audit procedures the auditor may have performed, may assist the auditor in concluding whether sufficient appropriate audit evidence has been obtained or whether further audit evidence is necessary, as required by ASA 330.[23]

[*]  Early