Page 120 - CA Inter Audit PARAM

CA Ravi Taori
QNO External Confirmation Procedures Old Course -- (N16E/M20R/ SM20/SM21)
505.05 Bhaskar CNO SA505.040 New Course -- (SM25)
Discuss external confirmation procedure as per SA-505
OR
"When using external confirmation procedures, the auditor shall maintain control over external

confirmation requests including sending the requests, including follow -up requests when applicable, to the
confirming party. Explain the other points as to when using external confirmation procedures, the auditor
would be required to maintain control over external confirmation requests."
Answer ➢ External Confirmation Procedures:
Determining the Information to be confirmed or Requested:
External confirmation procedures frequently are performed to confirm or request
information regarding account balances and their elements. They may also be used to
confirm terms of agreements, contracts, or transactions between an entity and other parties,
or to confirm the absence of certain conditions, such as a “side agreement”.

Selecting the Appropriate Confirming Party: Responses to confirmation requests provide
more relevant and reliable audit evidence when confirmation requests are sent to a
confirming party the auditor believes is knowledgeable about the information to be
confirmed.
• For example, a financial institution official who is knowledgeable about the
transactions or arrangements for which confirmation is requested may be the most
appropriate person at the financial institution from whom to request confirmation.

Designing Confirmation Requests: The design of a confirmation request may directly affect
the confirmation response rate, and the reliability and the nature of the audit evidence
obtained from responses.

Follow-Up on Confirmation Requests: The auditor may send an additional confirmation
request when a reply to a previous request has not been received within a reasonable time.
• For example, the auditor may, having re-verified the accuracy of the original
address, send an additional or follow-up request.

QNO— Control of External Confirmation Procedure New Course – (SM25/M24R)
505.05.50 Bhaskar CNO - SA505.040
CA Jignesh Desai is in midst of audit of a company. The company is fairly large one and has a well -
functioning internal audit department. While considering sending out external confirmation requests to
trade receivables outstanding as on date of financial statements, he has delegated the process of
choosing trade receivables, designing requests and receiving responses from customers to internal audit
department. The responses are also received on the mail id of internal audit department. Is approach of
CA Jignesh Desai proper?
Answer When using external confirmation procedures, the auditor shall maintain control over external
confirmation requests, including:
(a) Determining the information to be confirmed or requested;
(b) Selecting the appropriate confirming party;
(c) Designing the confirmation requests, including determining that requests are properly addressed
and contain return information for responses to be sent directly to the auditor; and
(d) Sending the requests, including follow-up requests when applicable, to the confirming party.

In the given case, it appears that external auditor has delegated entire work of sending out external
confirmation requests to internal audit department over which he has no control. Further, responses to
external confirmation requests are received on mail id of internal audit department. All these acts are not
in line with requirements under SA 505.

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