Ministry of Finance, Specific Independent Audit Guidelines No. 27: External Confirmation

Issued: March 5 2002
Effective: July 1 2002
Applicability: For the purposes of the Guidelines, "external confirmation" refers to the procedures by which a registered accountant sends confirmation requests in the name of a work unit that is being audited to third parties and evaluates the replies thereto in order to verify the work unit's account balances or other information that may affect the financial statements of the work unit (Article 2).

Main contents: To determine whether the use of external confirmations is necessary to obtain sufficient and appropriate audit evidence to support certain financial statement assertions, the accountant shall consider the factor of materiality, the assessed level of inherent and control risk and whether the evidence from other audit procedures will reduce audit risk to an acceptably low level for the applicable financial statement assertions (Article 4). The accountant shall conduct external confirmation to verify accounts receivable, bank deposits, account balances, loans and other transactions with financial institutions (Articles 6, 7 and 8). When management requests that certain balances or other information not be confirmed, the accountant shall consider whether valid grounds exist for such a request and whether there is an alternative audit procedure to achieve the same objective (Articles 11 and 12). If the management's request is not considered valid and external confirmation is prevented by the management, the accountant shall determine that there has been a limitation on the scope of the audit and shall consider the possible impact thereof on his audit report (Article 11). The confirmation request shall be tailored to the specific audit objective (Article 13). The accountant shall maintain control over the process of selecting those to whom a request will be sent, the preparation, sending of and receipt of the confirmation requests (Article 17). The accountant shall evaluate whether the results of the external confirmation process, together with the results from any other procedures performed, provide sufficient appropriate audit evidence regarding the financial statement assertion being audited (Article 26).
Related legislation: Independent Audits Basic Guidelines