What is the Role of Audit Confirmations?
The confirmation process during the course of a client audit is a means by which the auditor can receive evidence from a third-party regarding assertions that haveBE-100W been made by the client's management with respect to its financial statements. Confirmations are widely used in the audit process, although they represent merely one means by which auditors can address financial statement assertions of a client, and typically serve to address only certain of the categories of assertions. In other words, confirmations are one of many tools that auditors use to test assertions and are heavily dependent on the overall audit risk, as determined and measured by the auditor, with respect to the client and its financial statements.
Should an auditor determine that, given the assessed level of audit risk, it is appropriate and reasonable to rely on audit confirmations to test assertions, such third-party confirmations are a valuable tool with respect to certain accounts. It is important to note that there is no standard form of audit confirmation; the auditor designs the confirmation based on the information to be obtained, the assertion to be addressed and the risks associated with such assertion. In addition, and as the October 1992 article of The CPA Journal Online provides, "[a]n auditor should consider the respondent's competence, knowledge, motivation, HA-022Xability, willingness to respond, and overall objectivity." Furthermore, "if independent outside parties can be expected to provide relevant, reliable evidence and it is reasonably efficient to obtain this evidence from these parties, confirmation would be appropriate."
To ensure the reliability and security of information, an auditor "should maintain control over sending the confirmations and the responses received." In sending the confirmations, the auditor and respondent should be the communication link, without interference by the client. The accounting guidance provides that if a telephone or facsimileSF-040X response is received, the response should be documented in the audit workpapers, and the auditor should call the facsimile respondent to verify the source.
Should an auditor determine that, given the assessed level of audit risk, it is appropriate and reasonable to rely on audit confirmations to test assertions, such third-party confirmations are a valuable tool with respect to certain accounts. It is important to note that there is no standard form of audit confirmation; the auditor designs the confirmation based on the information to be obtained, the assertion to be addressed and the risks associated with such assertion. In addition, and as the October 1992 article of The CPA Journal Online provides, "[a]n auditor should consider the respondent's competence, knowledge, motivation, HA-022Xability, willingness to respond, and overall objectivity." Furthermore, "if independent outside parties can be expected to provide relevant, reliable evidence and it is reasonably efficient to obtain this evidence from these parties, confirmation would be appropriate."
To ensure the reliability and security of information, an auditor "should maintain control over sending the confirmations and the responses received." In sending the confirmations, the auditor and respondent should be the communication link, without interference by the client. The accounting guidance provides that if a telephone or facsimileSF-040X response is received, the response should be documented in the audit workpapers, and the auditor should call the facsimile respondent to verify the source.
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