Boomer Guide to Electronic Confirmations

The Confirmation Process

Independent auditors are required to obtain "sufficient appropriate audit evidence" to support their opinion on the financial statements.

"Sufficient" relates to the quantity of audit evidence obtained.  Has the auditor gathered enough?

"Appropriate" relates to relevance and reliability.

Audit Evidence

All three baseline elements must be in place for the auditor to fulfill his responsibilities.  It doesn't matter how much audit evidence the auditor obtains; if that evidence isn't reliable, then the audit quality has been compromised.

Questions regarding the use of confirmations relate to their reliability.  Are electronic confirmations as reliable as paper confirmations?  In fact, evidence suggests that electronic confirmations are more reliable than paper.

Building a Reliable Confirmation Process

The stewardship of audit quality rests upon a variety of standards setting organizations.  The rules for auditor performance are set by the AICPA (audits of non-public companies), the PCAOB (audits of public companies) and the IAASB (international audits).

Although the language of the three standards may vary, fundamentally they all agree on the four tenets of performing a proper confirmation.

  1. Communicate directly with and receive an active response from the third party
  2. Exercise professional skepticism
  3. Identify and validate a respondent who is free from bias and authorized to respond
  4. Maintain control of the confirmation process

Only by following these four tenets can the auditor ensure that the confirmation he or she receives is meaningful.

Next: How Reliable Are Paper-Based Confirmations?

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