The confirmation in the auditing process is a technique for obtain and evaluate a communication from a third party in response to a request for information made by the auditor. The request of the information can be both written and oral communications. According to Aldhizer and Cashell (2006), the auditor controls the initial mailing of confirmation requests to the client’s banks, debts of their customers and others. Prasad (2007) described, that the purpose of the confirmation is to bring more credibility on the information that the auditors have in their control.
The auditor will choose the confirmation procedure in order to corroborate that the information provided by their client is reliable and valid. There are two main types of confirmations that are related to where corroborate the information obtained and these are the internal and external confirmations. In addition, there are two types of external confirmations related to corroborate the information requested and there are the positive and negative confirmations.
Internal Confirmations The internal confirmations are information given by people inside of the company.
The author Prasad (2007) stated in their article that the internal sources consists of people such as management, or others that are related and could respond to the request made by the auditor. In the questionnaire (item 3) given to sixteen CPAs, a 12. 5% of them think that the internal confirmations are not a sufficient source to corroborate the information obtained. This is important because the information is provided by people within the organization.
This will cause a conflict of interest with the interested parties in the company, because certain people could omit relevant information that will affect the credibility of the organization.
When management provides the evidence, the auditor should consider whether these information received is correct and if it is not correct, the auditors can consider the use of an audit procedure to obtain a reliable evidence, regardless of the internal source. Then, the auditors have to evaluate the information with a professional judgment and not to be persuaded by the comments made by management.
The auditor also considers whether the alternative audit procedures will provide sufficient audit evidence regarding of the source of information. External Confirmations The external confirmation consists of obtain information outside of the business. The external confirmation is performed using standardized paper forms and mailed out to the sources outside of the company. As state the author de Beer (2006) the external source most commonly used is the confirmation of a bank, this is because they provide accurate and complete bank confirmation letters.
Also, Prasad (2007) wrote that there are other sources such as investors, creditors, banks, and others that are not directly related to the business. In the questionnaire (item 3) distributed to various auditors, a 62. 5 % of them believed that the external confirmations are a reliable source of evidence for the purpose of corroborating the information given. On the other hand, a 25% of the respondents of the questionnaire (item 3) answered that they used both the internal and external types of confirmations to corroborate the information.
Figure 2 show that the trend is that the auditors used the external confirmations to corroborate the information obtained because it is the most confident type of confirmation. Positive Confirmations A positive confirmation request is one in which the recipient is asked to respond directly to the auditor as to whether they agree with the information presented or by asking the respondent to fill in information as described by the authors McConnell and Schweiger (2008). A response is required irrespective of whether or not the information is regarded as correct. A 31. 5% of the CPAs responded in the questionnaire (item 2) that the positive type of confirmation is highly used in evaluating the information obtained to be used as evidence. The answer of the response to a positive confirmation request is usually expected to provide better reliable audit evidence. However, the positive form only provides audit evidence if responses are received directly from the recipients. Negative Confirmations A negative external confirmation request asks the respondent to answer only in the event of disagreement with the information provided in the request, as refers Prasad (2007) in their article.
However, when no response has been received to a negative confirmation request, the auditor remains aware that there will be no explicit audit evidence that intended third parties have received the confirmation requests and verified that the information contained therein is correct or not. In the questionnaire (item 2) given to many respondents, a 6. 25% of them answered that the negative type of confirmations are not frequently used as evidence because of their low rate of reply. As a result, the use of negative confirmation requests generally provides less reliable audit evidence than the use of positive confirmation requests.
In order to evaluate the negative confirmations, the auditor should consider performing other substantive procedures to compare both evidences obtained from different types of audit evidence. The Figure 3 is based on the findings of the questionnaire (item 2) and discuss that auditors used both internal and external confirmations to corroborate the evidence. Conclusion The confirmations as audit evidence are extremely used to corroborate the information provided by the client and the information related to the other party doing business with that client being audited.
The most commonly used type of request is written because there is a physical evidence of the confirmation. There are two main techniques of confirmations used and are the internal and external confirmations used to compare the information received. Also, the auditors will use two types under the external confirmations and are the negative and the positive confirmations. The auditors must prefer the positive external confirmations because these confirmations are from a third party source.
Moreover, the positive type of confirmation is most reliable because the purpose is to corroborate information that actually exists and is accurate. In conclusion, the auditors will not prefer the negative confirmation because they consist only to verify if the auditors disagree with the information provided. The important thing is that the auditor can verify if the information provided by the client being audited is correct, and if it is not, the auditor can use an alternative procedure to substantiate the evidence.
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