External Confirmations

PSA 505
 Generalizations on Audit Evidence

If from independent outside sources: more reliable

If generated internally: more reliable

If in the form of documents and written representations

:more reliable
If obtained directly by the auditor: more reliable
 External Confirmation Procedures

Determining Selecting
Designing
the the Sending
the
information to appropriate the
be confirmed confirmatio
confirming requests
or requested n requests
party

3
 External Confirmation Procedures

Determining
Selecting
the Designing
the Sending
information the
appropriate the
to be confirmatio
confirming requests
confirmed or n requests
requested party

4
 External Confirmation

Audit evidence obtained as a direct

It is frequently performed to confirm or
response from a third party (the confirming
request information regarding account
party in paper form, electronic or other
balances and their elements
medium
Determining
the
information
to be
confirmed or
requested
 External Confirmation Procedures

Determining
Selecting
the Designing
the Sending
information the
appropriate the
to be confirmatio
confirming requests
confirmed or n requests
requested party

6
 Confirmation requests are
sent a confirming party the
auditor believes is
knowledgeable about the
information to be confirmed
Selecting
the
appropriate
confirming
party
 External Confirmation Procedures

Determining
Selecting
the Designing
the Sending
information the
to be
appropriate the
confirmatio
confirming requests
confirmed or n requests
requested party

8
 Factors to consider
1 The assertions being addressed

2 Specific identified risks of material

3 The layout and presentation

4 Prior experience on the audit or similar engagements

5 Management’s authorization or encouragement

The ability of the confirming party to confirm or

Designing
6 provide information
the
confirmation
requests
 Different Confirmation
Request
Positive Confirmation Letter

Negative Confirmation Letter

 Different Confirmation
Request
A request that the confirming party
respond directly to the auditor

Positive Confirmation Letter

It indicates whether the confirming party
agrees or disagrees with information in
the request or providing the requested
information
 Different 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.

Negative Confirmation Letter

It is designed for use in situations where a
client company's internal controls are
already considered to be quite strong
 External Confirmation Procedures

Determining
Selecting
the Designing
the Sending
information the
to be
appropriate the
confirmatio
confirming requests
confirmed or n requests
requested party

13
 The auditor may send an
additional confirmation
request when a reply to a
previous request has not
been received within a
reasonable time
Sending
the
requests
Management Refusal… Perform
Evaluate the alternative
implications audit
procedures
of
designed to
management’ obtain
Inquire as to s refusal on relevant and
management’ the auditor’s reliable audit
s reasons for assessment evidence
the refusal of the relevant
risks of
material
misstatement
 Results of External Confirmation Procedures

 When Responses Necessary  If responses will not be

available, determine the
implications for the audit
 Reliability of and the auditor’s opinion
Responses  evaluate the implications on the
assessment of the relevant risks of
material misstatement
Reliability of Responses
 If there are doubts as to confirmations,
obtain further audit evidence to
resolve those doubts
Reliability of Responses

indicate doubts as to
Factors that may
reliability
1 Received by the auditor indirectly

Appeared not to come from the

2 originally intended confirming party
E
X 1
A Responses are received electronically

M
P 2
Confirming Party uses third party
L to coordinate

E
S
 Evaluating Evidence
Obtained
The auditor shall evaluate
whether the results provide
relevant and reliable audit
evidence, or whether
performing further audit
procedures is necessary
 Results of External Confirmation Procedures

 When Responses Necessary  If responses will not be

available, determine the
implications for the audit
 Reliability of and the auditor’s opinion
Responses  evaluate the implications on the
assessment of the relevant risks of
material misstatement and revise the
Reliability of Responses assessment

 If there are doubts as to confirmations,

obtain further audit evidence to
resolve those doubts
Initial Audit Engagements
– Opening Balances
PSA 510
“ This PSA deals with the auditor’s responsibilities
relating to opening balances when conducting an
initial audit engagement. In addition to financial
statement amounts, opening balances include
matters requiring disclosure that existed at the
beginning of the period
Scope of the
PSA
”
“ This PSA deals with the auditor’s responsibilities
relating to opening balances when conducting an
initial audit engagement. In addition to financial
statement amounts, opening balances include
matters requiring disclosure that existed at the
beginning of the period
Scope of the
PSA
”
 Definitions…
Account balances that exist at the
beginning of the period.

Based upon the closing balances of

the prior period and reflects the effects
Opening Balances if transactions and events prior periods
and accounting policies in the prior
period

Include matters requiring disclosure

that existed at the beginning of the
period
“ This PSA deals with the auditor’s responsibilities
relating to opening balances when conducting an
initial audit engagement. In addition to financial
statement amounts, opening balances include
matters requiring disclosure that existed at the
beginning of the period
Scope of the
PSA
”
“ This PSA deals with the auditor’s responsibilities
relating to opening balances when conducting an
initial audit engagement. In addition to financial
statement amounts, opening balances include
matters requiring disclosure that existed at the
beginning of the period
Scope of the
PSA
”
 Definitions…

The FS for the prior period were

not audited

Initial Audit Engagement

The FS for prior period were

audited by a predecessor auditor
 Definitions…

Predecessor Auditor

The auditor from different audit firm who

audited the financial statements of an
entity in the prior period and who has
been replaced by the current auditor
 Definitions…

Predecessor Auditor

The auditor from different audit firm who

audited the financial statements of an
entity in the prior period and who has
been replaced by the current auditor
 Definitions…

Predecessor Auditor

The auditor from different audit firm who

audited the financial statements of an
entity in the prior period and who has
been replaced by the current auditor
Objectives…
Opening balances contain misstatements that materially
affect the current period’s financial statements

Appropriate accounting policies reflected in the opening

balances have been consistently applied in the current
period’s financial statements
 Audit
Procedures…
Opening Balances

1 the auditor shall read the most recent financial statements

2 Determining whether the opening balances reflect the

application of appropriate accounting policies

3 Perform additional audit procedures as are appropriate in

the circumstances
 Audit
Procedures…
Consistency of Accounting Policies

4 Obtain sufficient appropriate evidence about whether the

accounting policies have been consistently applied

5 Obtain sufficient appropriate evidence whether changes in

accounting policies have been properly accounted,
presented and disclosed
 Audit
Procedures…
Relevant Information in the Predecessor
Auditor’s Report

6 If there was a modification to the opinion, evaluate the

effect of the matter caused the modification
 Audit Conclusion and
Reporting…
Opening Balances

1 Auditor is unable to obtain sufficient appropriate

evidence regarding the opening balances

2 Auditor concludes that the opening balances contain a

misstatement that materially affects the current period FS

Issue and ADVERSE opinion or QUALIFIED opinion

 Audit Conclusion and
Reporting…
Consistency of Accounting Policies

3 If the current period’s accounting policies are not

consistently applied in relation to opening balances

4 If the change in accounting policies is not

accounted properly

Issue and ADVERSE opinion or QUALIFIED opinion

 Audit Conclusion and
Reporting…
Modification to the Opinion in the Predecessor Auditor’s Report

5 If what caused the modification to the auditor’s opinion is

still relevant and material to current period FS

Issue and ADVERSE opinion or QUALIFIED opinion