How An Auditor Conducts The Direct Confirmation Procedure For Verifying The Debtors?
Always, the method of direct confirmation is considered as the theoretically best solution for evaluating the book records which includes all the asset classes granted by a business company to its customers. Also, this is effective for realizing the present status more in an accurate manner especially if the internal control system is not good enough. However, the overall success of this procedure lies in the timely confirmation you get for your requests as an auditor.
In actual means, there exist an entity under audit who may in certain situations, request the auditor not to seek verification from specific debtors. So, it forms his duty to analyze if there are valid grounds for their saying and likewise, he should extend his period of auditing practice.
Subjects under consideration
- The debtors may be asked to check on the balances either on account of the date registered in the balance sheet or on any other day that is nearly close to the suspected date of the balance sheet. This specific day and timing must be selected as per discussion with the management entity.
- There can be two types of useful reference confirmation from the respective debtor which could be in a positive manner or else in the negative mode. The positive form includes the debtor comply with the date on the balance sheet and the negative includes the debtor turning down the requested data that is recorded in the balance sheet.
- Further, the definite form is mostly employed for the cases where large account transaction has occurred and also in the stages where the respective internal controls are totally weak. Also, the auditor thinks that if the accounts are in the level of complications like disputes or some sort of irregularities.
- On the other hand, the non-approval form is utilized for the cases where a numerous small balance transaction has been made and also, the internal control strategy is strong enough to support the happening status. Moreover, the auditor himself is not sure about the response from the corresponding debtors. Normally, if the negative type is the chosen mode of operation, then the whole process will be a tedious one as the auditor needs to obtain the assurance from the different debtors about their prevailing balances.
- Another case is dependent on the size of the debtors. If the population of debtors is relatively small, then all of them may be evenly circularized and if they are large in number, then affirmation may be carried out on a sample basis.