Prime Infrastructure Limited appointed K & Co., Chartered Accountants, as its statutory auditors for the year ended 31st March, 2026. During the…
CA Intermediate · Auditing and Ethics · MTP · September 2026
Prime Infrastructure Limited appointed K & Co., Chartered Accountants, as its statutory auditors for the year ended 31st March, 2026. During the audit, the Engagement Partner decided to obtain external confirmations from selected trade receivables to verify the outstanding balances. The audit team received different types of responses. Some customers confirmed the balances exactly as stated in the confirmation requests, one confirmation was received from an email address whose authenticity was doubtful, a few customers did not respond despite repeated follow-ups and one customer disputed the balance stated in the confirmation request. While reviewing the results of the confirmation procedures, an audit assistant suggested that only the confirmations received without exception should be considered and that no further audit procedures were required in respect of the remaining cases. The Engagement Partner, however, emphasised that the results of all individual confirmation requests need to be appropriately evaluated before drawing an audit conclusion. With reference to the above facts, explain how the auditor would evaluate the evidence obtained from external confirmation procedures. Also discuss the different categories into which the results of individual external confirmation requests may be classified and comment on the correctness of the audit assistant's view.
Suggested Answer and Working Notes:
Evaluating the Evidence Obtained As per SA 505 “External Confirmations”, the auditor shall evaluate whether the results of the external confirmation procedures provide relevant and reliable audit evidence, or whether performing further audit procedures is necessary. When evaluating the results of individual external confirmation requests, the auditor may categorise such results as follows: (i) A response by the appropriate confirming party indicating agreement with the information provided in the confirmation request, or providing requested information without exception; (ii) A response deemed unreliable; (iii) A non-response; or (iv) A response indicating an exception. The auditor's evaluation, when taken into account with other audit procedures the auditor may have performed, may assist the auditor in concluding whether sufficient appropriate audit evidence has been obtained or whether performing further audit procedures is necessary, as required by SA 330. From the given facts, it can be concluded that the audit assistant's view is not correct. The auditor is required to evaluate all results of the external confirmation procedures and not merely those received without exception. Responses that are unreliable, non-responses and responses indicating exceptions may require the performance of further audit procedures. Accordingly, the Engagement Partner's approach is in accordance with the requirements relating to the evaluation of evidence obtained through external confirmation procedures.
Topics: Audit Evidence
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