![]() Where the entity has any pending litigations, the auditor may send out a confirmation letter to the lawyer to confirm the status of the pending litigation or any form of litigation the audit client may be involved in. By doing so, the auditor will be able to obtain comfort in the quantity and condition of the stock held. The auditor shall also ascertain if any inventory is held at third parties, this can rightfully be achieved by sending out a confirmation letter. A payable confirmation letter also provides evidence of any unrecorded liabilities. ![]() The auditor may also send out confirmation letters to the audit client’s trade payables, to test the existence, accuracy and valuation assertations. Obtaining debtor confirmations will give the auditor comfort on any potential risks of material misstatement due to fraud or otherwise relating to revenue recognition. Accounts written off during the period under review. ![]() When selecting a sample of debtor balances the following shall be considered: Within accounts receivable confirmations the auditor shall confirm terms of unusual or complex agreements or transactions especially those relating to the entity’s revenue recognition. Highly reliable independent audit evidence can be obtained by selecting a sample of the audit client’s credit customers for direct confirmation to ultimately test the accuracy, existence, and valuation assertions. This letter will also inform the auditor of all accounts held and closed during the financial period under review. A bank confirmation extends beyond the verification of the actual bank balance since the auditor will be able to test further assertions obtaining comfort on any contingent liabilities, outstanding interests and overdraft limits. When confirming bank balances, the bank confirmation letter is one of the strongest forms of evidence. Confirming parties should send responses directly to the auditors and not to the accounting department of the entity being audited, as otherwise the confirmation letter would be considered unreliable and additional audit procedures would need to be conducted. These include designing the confirmation request, determining the parties to contact and the information to be requested, and delivering and making follow-ups on all the requests. The auditor must take the necessary steps to obtain control over the process. ![]() For auditors, obtaining responses is a critical stage in terms of information reliability. Confirmations help in identifying discrepancies in accounting records, existence and rights and obligations. The confirmation letter shall include relevant information that the recipient is able to confirm clearly identifying the exact and full name of the organisation being audited. What Should the Confirmation Letter Include? An audit confirmation letter is an inquiry sent by the auditor to a third party to establish the contents of the accounting records of the entity that is being audited. ISA 505 (which is one of the Internal Standards of Auditing followed by auditors) defines external confirmations as “audit evidence obtained as a direct written response to the auditor from a third party (the confirming party), in paper form, or by electronic or other media”. What are confirmation letters and why are they important? ISA 505 Confirmation letters are considered to be among the most persuasive forms of audit evidence because they are received directly from a third party. In particular, it addresses certain types of authorised push payment fraud by providing a platform for PSPs to provide effective warnings to payers about the risks associated with progressing with a payment to an account where the name does not match.During the course of an audit, auditors are required to obtain sufficient audit evidence on the basis of which to establish their opinion. The sort code and account number were then used to route the payment in accordance with the instructions given, however, there was no facility for the payer to check and confirm the name on the account being paid ahead of the payment being sent.Ĭonfirmation of Payee is a way of giving payers greater assurance that their payments are being routed to the intended recipient and therefore are not being accidentally or deliberately misdirected. Today, volumes of Confirmation of Payee requests are averaging more than one million per day.īefore the service was implemented a payer would provide their PSP with all the payee’s details, including their bank sort code and account number together with the name of the person or organisation they were intending to pay. The aim of the service is to reduce certain types of fraud as well as misdirected payments. Confirmation of Payee is a name checking service for UK-based payments which Pay.UK launched in 2020 and which has now been successfully implemented by a number of UK banks, building societies and other payment service providers (PSPs).
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