Page 122 - CA Inter Audit PARAM

CA Ravi Taori
the view that negative confirmations provide same level of persuasive audit evidence as in case of positive
confirmations. Do you agree with his viewpoint? Provide reasons for your answer.
Answer Definition
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.

Mandatory Conditions
Negative confirmations provide less persuasive audit evidence than positive confirmations.
Accordingly, the auditor shall not use negative confirmation requests as the sole substantive audit
procedure to address an assessed risk of material misstatement at the assertion level unless all of the
following are present:

➢ The auditor has assessed the risk of material misstatement as low and has obtained sufficient
appropriate audit evidence regarding the operating effectiveness of controls relevant to the
assertion;
➢ The population of items subject to negative confirmation procedures comprises a large number
of small, homogeneous, account balances, transactions or conditions;
➢ A very low exception rate is expected; and
➢ The auditor is not aware of circumstances or conditions that would cause recipients of negative
confirmation requests to disregard such requests.

QNO External Confirmation- Management refuse Old Course -- (SM17/N20E/M23M/M23R/M23E)
505.11 Bhaskar CNO SA505.120 New Course -- (J25M)
While conducting the audit of Jay Kay Ltd, the auditor K of KLM and Associates, Chartered Accountants
observes that there are large number of Trade payables and receivables standing in the books of accounts
as on 31st March. The auditor wanted to send confirmation request to few trade receivables but the

management refused the auditor to send confi1 SA 505 Management refuse to sent External Confirmation
to Particular groups of Debtors Confirmation request.
Required, How would the auditor proceed?
Answer ➢ Inquiry
If management refuses to allow the auditor to send a confirmation request, the auditor shall Inquire
as to management’s reasons for the refusal, and seek audit evidence as to their validity and
reasonableness;

➢ Evaluate
Evaluate the implications of management’s refusal on the auditor’s assessment of the relevant risks
of material misstatement, including the risk of fraud, and on the nature, timing and extent of other
audit procedures; and

➢ Alternative audit procedures
Perform alternative audit procedures designed to obtain relevant and reliable audit evidence.

➢ Auditor conclusion
If the auditor concludes that management’s refusal to allow the auditor to send a
confirmation request is unreasonable, or the auditor is unable to obtain relevant and
reliable audit evidence from alternative audit procedures,
• the auditor shall communicate with those charged with governance in accordance
with SA 260.

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