IFAC provides guidance on external confirmations.The International Federation of Accountants The external links in this article or section may require cleanup to comply with Wikipedia's content policies. recently issued an international standard on auditing that provides guidance on the use by auditors of external confirmations as a means of obtaining audit evidence.
Confirmation is the process by which auditors obtain and evaluate direct communications from a third party in response to requests for information about a particular item affecting a client's financial statements.
An auditor may employ external confirmations for account balances and their components though their use need not be restricted to these items. Generally, audit evidence received from independent third parties is more reliable than audit evidence generated by a client. Take the case of Company X, Which claims a customer owes it a certain dollar amount. An auditor may send an external confirmation to the customer to verify the amount that is owed and the agreement terms.
The new standard outlines for auditors how to respond to certain management requests, how to evaluate the results of the confirmation process and how to use positive and negative confirmations.
A positive confirmation form asks that a third party indicate whether he or she agrees with the information stated on the request. Some forms, which are referred to as blank forms, do not state the amount or other information, but request a recipient fill in the balance or furnish fur·nish
tr.v. fur·nished, fur·nish·ing, fur·nish·es
1. To equip with what is needed, especially to provide furniture for.
2. other information.
According to Jim According to Jim is an American situation comedy television series originally broadcast by ABC. The show premiered with little publicity in October 2001, following the surprise hit comedy My Wife and Kids. Sylph sylph
spirit inhabiting atmosphere in Rosicrucian philosophy. [Medieval Hist.: Brewer Dictionary, 1055]
See : Air , a technical manager at IFAC IFAC - International Federation of Automatic Control, involved in informatics related to control systems. , negative confirmations ordinarily or·di·nar·i·ly
1. As a general rule; usually: ordinarily home by six.
2. In the commonplace or usual manner: ordinarily dressed pedestrians on the street. provide less reliable evidence than positive confirmations. The recipient responds only if he or she disagrees with the information given. In a situation where there are a number of small balances but not many errors are expected, it is appropriate to use negative confirmations.
The standard extends existing guidance on confirmation of accounts receivable accounts receivable n. the amounts of money due or owed to a business or professional by customers or clients. Generally, accounts receivable refers to the total amount due and is considered in calculating the value of a business or the business' problems in paying to all types of external confirmations and clarifies the design for and the process of obtaining such confirmations. It also provides suggestions for what the auditor should do when there is no response to a confirmation request.
Robert Roussey, former chairman of IFAC's international auditing practices committee, said that in making their determinations of whether or not to use confirmations, auditors should consider materiality MATERIALITY. That which is important; that which is not merely of form but of substance.
2. When a bill for discovery has been filed, for example, the defendant must answer every material fact which is charged in the bill, and the test in these cases seems to , the level of risk and how planned audit procedures will reduce risk to an acceptable level.
This standard is effective for financial statement periods ending on or after December 31, 2001. It is available at the IFAC Web site, www.ifac.org.