NSA-505

External Confirmation
 Inquiry

Inside the entity Outside the entity

External Confirmation
Management TCWG

They are the part of NSA 580

External confirmation

Audit evidence obtained:

As a direct written response
To the auditor from a third party
In paper/electronic/ other forms

*External confirmation are frequently used in relation to

account balances and their component, but need not to be
restricted to these items.
Example of situations where external
confirmations are used

Bank balances and other info from bankers.

Account receivable / payable balances
Loans from lenders
Investment purchased from stockbrokers
but not delivered at balance sheet date
 stock held by third party(Consignment)
Property title deed held by lawyers.
Factors to be considered while designing a
confirmation request
• The assertions being addressed
• The layout and presentation of the confirmation of the
confirmation request.
• Prior experience on the audit or similar engagement
• The ability of the confirmation to provide the
requested info.
• Management authorization to the confirming partied to
respond to the auditor.
• Specific identified risk of material misstatement,
including fraud risk.
 Mgmt refuse to allow the auditor to not to
seek external conf.

Management reason + Viability there of

Invalid Valid
Auditor won’t agree because it
is limitation of scope. Agree + Perform Alternative Pr.

Qualified/Disclaimer of opinion okay

Management refusal to allow the auditor to send
a confirmation request:

• The auditor should consider whether there are valid

ground for such a request and obtain evidence to support
the same.
• The should ask the mgmt to submit it’s request in
written form, dealing therein the reason for such a
request
• After that, the auditor should apply alternative
procedure to obtain SAAE
 External confirmation process

• Positive confirmation Negative confirmation

Positive Confirmation
Reply in any case(either agrees
or disagrees)
Your balance is Rs, 10000 as per Your balance is Rs, 10000 as
mgmt , confirm if you
agree/disagree with same.
Is used when:
RISK IS HIGH, DOUBT IS
HIGH AND BALANCE IS ALSO
HIGH
Negative confirmation
Reply only in case of
Disagreement
per please reply in case of
Disagreement.
Is used when:
RISK IS LOW, DOUBT IS LOW
AND BALANCE IS ALSO LOW
Result of the external confirmation
procedure:

• If the auditor identifies factors that gave rise to

• Doubt about the
• Reliability of the response to a confirmation
request,
• The auditor should obtain further audit evidence
Factors that may indicates doubt about the
reliability of a response

• Was received by the auditor indirectly or,

• Appeared not to come from the originally
intended confirming party.

Perform alternative auditor procedure

•Thank you