Page 126 - CA Final PARAM Digital Book.

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

➢ 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.

External Confirmation (Use of Negative Old Course – (M14E, PM17, SM17, M18R, SM21,N22E)
QNO Confirmation Request Inappropriate) New Course – (SM23)
63.000
TITANIUM CNO -- SA505.060
During the course of audit of Moon Limited the auditor received some of the confirmation of the balances
of trade payables outstanding in the balance sheet through external confirmation by negative
confirmation request. In the list of trade payables, there are number of trade payables of small
balances except one old outstanding of Rs 25 Lacs, of whom, no confirmation on the credit balance

received. Comment with respect to Standard of Auditing.
Answer Part I -- Relevant Standards & Laws
▪ SA 505 “External Confirmation”

Part II -- Requirements of Relevant Standards & Laws
➢ Negative Confirmation Definition: - Confirming party should response only if they disagree
with info given in EC request.
As per SA 505, Negative Confirmation is a request that the confirming party respond directly to the
auditor only if the confirming party disagrees with the information provided in the request.

➢ Less Persuasive: - In NCR there is no response if TP agrees to Info. In PCR there is
response with confirmation if info agrees. NCR provides less persuasive evidence because
if there is no response, it may be because request is not received, Or they may not have
replied because information disagreement may be favourable for them. Or they were just
careless to reply. Hence no response is not explicitly indicating accuracy of information.
NCR should be used for large number of small homogenous balances. It should not be used
for big balances.

Negative confirmations provide less persuasive audit evidence than positive confirmations. 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.

➢ No Response: - No response in NCR does not means misstatement / As NCR requires to
respond only if there is disagreement / if Auditor has doubt he can examine subsequent
cash disbursements / correspondence with TP / Examine other documents such as GRN
etc
Further non-response for negative confirmation request does not means that there is some
misstatement as negative confirmation request itself is to respond to the auditor only if the
confirming party disagrees with the information provided in the request. In case of non-response,
the auditor may examine subsequent cash disbursements or correspondence from third parties,
and other records, such as goods received notes.

Part III – Case Discussion
➢ Use of NCR: - Auditor has used NCR. There are many small credit balances, but one
balance is of 25 lakhs and it is old outstanding.
In the instant case, the auditor sent the negative confirmation requesting the trade payables having
outstanding balances in the balance sheet while doing audit of Star Limited. One of the old
outstanding of Rs 25 lacs has not sent the confirmation on the credit balance.
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