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CA Ravi Taori

SA 505

EXTERNAL CONFIRMATIONS

(CNO-SA505.020) What Is External Confirmation?
Definition: Direct written response from TP to Auditor.
Direct confirmations from third parties can be more reliable than internal entity-generated evidence.
Considered Reliable Because
External Sources: Audit evidence from independent external sources is more reliable.
Documentary Evidence: Evidence in documentary form (paper, electronic, or other medium) is more reliable.
Direct Acquisition: Evidence obtained directly by the auditor is more reliable than indirect evidence.
Examples
Examples- Shortcut just imagine B/S & P&L
Asset Related in Sequence:
• Fixed Assets – Property title deeds held by third parties.
• Investments - Investments purchased but delivery not taken.
• Stock- held by third parties.
• Debtor- Balances
• Bank- Balance and other information from bankers
Liability Related in Sequence:
• Loan Balances
• Creditors
Profit & Loss A/c Related:
• Transactions & related details
• Terms of agreement of transactions

(CNO-SA505.040) External Confirmation Procedures
Auditors shall have control over External Confirmations procedure.
1. Determine Information: Determine the information to be confirmed or requested.
2. Select Appropriate Party: Select the appropriate confirming party.
3. Design Confirmation Request: Design the confirmation requests, ensuring proper addressing and return
information for direct responses to the auditor.
4. Sending Request: Send the requests, including follow-up requests when applicable, to the confirming party.
1.Determining the Information to be Confirmed or Requested
Balances: Confirm or request information regarding account balances and their elements.

Agreements: Confirm terms of agreements, contracts, or transactions between an entity and other parties.
Confirm the absence of certain conditions, such as a "side agreement."
2. Selecting the Appropriate Confirming Party

Relevant & Reliable Audit Evidence: Responses to confirmation requests provide more relevant and reliable
audit evidence, if it is sent to appropriate party.

Knowledgeable: Send confirmation requests to a confirming party knowledgeable about the information to
be confirmed, e.g., a financial institution official knowledgeable about the transactions or arrangements for
which confirmation is requested.
3.Designing Confirmation Requests

Directly affect the confirmation response rate, and the reliability and the nature of the audit evidence.

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