Page 124 - CA Final PARAM Digital Book.

Part 3- SA 505

QNO Designing Confirmation Request Old Course – (M16E, N17M, N18R, SM17, SM21)
62.000 TITANIUM CNO--SA505.040
Mr H who is appointed as auditor of EXL Co Ltd wants to use confirmation request as audit evidence during
the course of audit What are the factors to be considered by Mr H when designing a confirmation

request? Also state the effects of using positive external confirmation request by Mr H.
Answer Part I -- Relevant Standards & Laws
▪ SA 505, External Confirmation

Part II -- Requirements of Relevant Standards & Laws

➢ As per SA 505, “External Confirmation”, factors to be considered 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).

➢ Positive Confirmation Request: - Requests reply in all cases irrespective of whether confirming
party agrees to info given or by directly asking information. There is risk that party responds
without verifying hence its better don’t state info / amount simply ask for it

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 information is correct. The auditor
may reduce this risk by using positive confirmation requests that do not state the amount (or
other information) on the confirmation request and ask the confirming party to fill in the amount
or furnish other information. On the other hand, use of this type of “blank” confirmation request
may result in lower response rates because additional effort is required of the confirming parties.

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