Page 119 - CA Inter Audit PARAM

CA Ravi Taori
Overview of external confirmation-Types /Non- Old Course -- (M20R)
QNO
505.04 Response/Exception #Unique
"Define the following :
(i) Positive confirmation request
(ii) Negative confirmation request
(iii) Non-response
(iv) Exception"
Answer ➢ Positive confirmation request – A request that the confirming party respond directly to the
auditor indicating whether the confirming party agrees or disagrees with the information in the

request or providing the requested information.
➢ Negative confirmation request – A request that the confirming party respond directly to the
auditor only if the confirming party disagrees with the information provided in the request.
➢ Non-response – A failure of the confirming party to respond, or fully respond, to a positive
confirmation request, or a confirmation request returned undelivered.
➢ Exception – A response that indicates a difference between information requested to be confirmed,
or contained in the entity’s records, and information provided by the confirming party.

Identify Type of External Confirmation Request and What if there is New Course – (S24E)
QNO--
Exception
505.04.50 Bhaskar CNO – SA 505.50

During the audit of accounts for the year ended 31.03.2024, the auditor of FD Limited wanted
confirmation from a Trade Receivable, which was outstanding for more than six months, amounting
to ₹ 4,25,000/-. The auditor sent a Confirmation letter to the party requesting them to respond directly
to him, whether or not they agree with the amount outstanding from them.

That trade receivable confirmed to the auditor of FD Limited, that they were required to pay an amount
of ₹ 4,20,000 to FD Limited as per their books of accounts.

State and explain the type of Confirmation Request sent by the auditor and the course of action that
he should take on the confirmation received from the trade receivable.
Answer Positive confirmation request: A request that the confirming party respond directly to the auditor
indicating whether the confirming party agrees or disagrees with the information in the request or
providing the requested information.

Exception – A response that indicates a difference between information requested to be confirmed, or
contained in the entity’s records, and information provided by the confirming party. The exception needs
to be assessed to the entire population after analyzing the reason for difference.

In the given situation, the auditor has sent the positive confirmation request for the amount of 4,25,000
to a trade receivable which was outstanding for more than 6 months, however, due to difference
between information requested to be confirmed, or contained in the entity’s records (i.e. 4,25,000), and
information provided by the confirming party (i.e. 4,20,000) is forming situation of exception
confirmation.

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 performing further audit procedures is necessary, as required by SA 330 in case a
response is indicating an exception.

The company should be asked to investigate and reconcile the discrepancy indicated by the confirming
party.

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