Page 118 - CA Inter Audit PARAM

CA Ravi Taori

QNO External Confirmation- Examples- Area Old Course -- (P16M/M16R/M17R/M18R/N19R/ M22M/N22R)
505.03 Bhaskar CNO SA505.020
Point out any eight areas where external confirmation are used as an audit procedure.
OR
What is meant by external confirmation? Mention four situations where external confirmation may be
useful for auditors.
OR
The auditor should determine whether the use of external confirmation is necessary to obtain sufficient
appropriate audit evidence to support certain financial statement assertions. Explain stating clearly the
meaning of external confirmation. Also mention four situations where external confirmation may be useful
for auditors.
OR
Write short notes on External confirmation as audit procedures
OR
External confirmation procedures frequently are relevant when addressing assertions associated with
account balances and their elements but need not be restricted to these items. Explain.
OR
External confirmation procedures frequently are relevant when addressing assertions associated with
account balances and their elements but need not be restricted to these items. Apart from confirmations
for bank balances and accounts receivables, what are the other situations where external confirmation
procedures may provide relevant audit evidence in responding to assessed risks of material misstatement?
Answer ➢ External Confirmation as an Audit Procedure External Confirmation as audit procedure:
An external confirmation represents audit evidence obtained by the auditor as a direct
written response to the auditor from a third party (the confirming party), in paper form, or
by electronic or other medium.
External confirmation procedures frequently are relevant when addressing assertions
associated with certain account balances and their elements.
Other areas where external confirmations may be used include the following:
• Bank balances and other information from bankers.
• Accounts receivable balances.
• Inventories held by third parties.
• Property title deeds held by third parties.
• Investments purchased but delivery not taken.
• Loans from lenders.
• Accounts payable balances.
• Long outstanding share application money.

However, external confirmations need not be restricted to account balances only.
• For example, the auditor may request confirmation of the terms of agreements or
transactions an entity has with third parties; the confirmation request may be
designed to ask if any modifications have been made to the agreement and, if so,
what the relevant details are.
• External confirmation procedures also are used to obtain audit evidence about the
absence of certain conditions, for example, the absence of a “side agreement” that
may influence revenue recognition.

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