23.Negative confirmation requests may be used to reduce audit risk to an acceptable level when: (a) the assessed level of inherent and control risk is low;(b) a large number of small balances is involved;(c) a substantial number of errors is not expected; and(d) the auditor has no reason to believe that respondents will disregard these requests.
505 EXTERNAL CONFIRMATIONS 226 24. A combination of positive and negative external confirmations may be used. For example, where the total accounts receivable balance comprises a small number of large balances and a large number of small balances, the auditor may decide that it is appropriate to confirm all or a sample of the large balances with positive confirmation requests and a sample of the small balances using negative confirmation requests. Management Requests 25. When the auditor seeks to confirm certain balances or other infor- mation, and management requests the auditor not to do so, the auditor should consider whether there are valid grounds for such a request and obtain evidence to support the validity of management’s requests. If the auditor agrees to management’s request not to seek external confirmation regarding a particular matter, the auditor should apply alternative procedures to obtain sufficient appropriate evidence regarding that matter. 26. If the auditor does not accept the validity of management’s request and is prevented from carrying out the confirmations, there has been a limitation on the scope of the auditor’s work and the auditor should consider the possible impact on the auditor’s report. 27. When considering the reasons provided by management, the auditor applies an attitude of professional skepticism and considers whether the request has any implications regarding management’s integrity. The auditor con- siders whether management’s request may indicate the possible existence of fraud or error. If the auditor believes that fraud or error exists, the auditor applies the guidance in KSA 240 “Fraud and Error.” The auditor also considers whether the alternative procedures will provide sufficient
505 EXTERNAL CONFIRMATIONS 227 appropriate evidence regarding that matter. Characteristics of Respondents 28. The reliability of evidence provided by a confirmation is affected by the respondent’s competence, independence, authority to respond, knowledge of the matter being confirmed, and objectivity. For this reason, the auditor attempts to ensure, where practicable, that the confirmation request is directed to an appropriate individual. For example, when confirming that a covenant related to an entity’s long-term debt has been waived, the auditor directs the request to an official of the creditor who has knowledge about the waiver and has the authority to provide the information.
- Winter '16