M5 Use Of Confirmations

Question 1

What is an external confirmation?

Answer 1

When an auditor wishes to confirm an item within the financial statements of his client and he confirms it via communications with someone else outside of the client (banks)

Question 2

How do you design a confirmation?

Answer 2

• determine the date when the response to the external confirmation is needed so you can plan it timeously
• determine if there is any additional information to be included in the confirmation (trade finance transactions)
• include all the necessary information in the confirmation (like account numbers)
• establish that the client information given to the bank to provide the requested information to the auditor is valid
• determine where to send the request to

Word: DIAED

Question 3

What are the different types of confirmations you can perform?

Answer 3

• debtors confirmations
• bank confirmation
• litigation and claims confirmation
• management representation letter (dealt with in (ISA 580)

within those you can also have the following
- positive confirmation - when you expect a reply back to get confirmation
- negative confirmation, when no reply is the confirmation you are looking for