The Public Company Accounting Oversight Board (PCAOB) recently approved for public comment a proposed auditing standard, Confirmation. The proposed standard would modernize and strengthen the requirements under the current auditing standard, AU Section 330, The Confirmation Process, which it would replace. The proposed standard carries forward some of the requirements in AU Section 330. In addition, for certain matters, the proposed standard adds to the existing requirements by requiring the auditor to perform additional procedures.
For example, the proposed standard more explicitly incorporates consideration of the risk of material misstatement due to error or fraud into the selection, design, and performance of confirmation procedures. The proposed standard applies this approach to the confirmation process by requiring the auditor to perform confirmation procedures in response to significant risks that relate to the relevant assertions that can be adequately addressed by confirmation procedures. In addition, the proposed standard includes other procedures that address the risk of material misstatement, such as in the areas of investigating exceptions reflected on confirmation responses and evaluating non-responses to confirmation requests.
The proposed standard enhances requirements when confirmation responses include disclaimers and restrictive language. The proposed standard requires the auditor to evaluate disclaimers and restrictive language included in confirmation responses to determine whether such disclaimers or restrictive language affect the reliability of those responses. The proposed standard further provides that if such language precludes the auditor from treating the response as a confirmation response, the auditor should perform alternative procedures to obtain relevant and reliable audit evidence or assess the implications, if any, for the audit report.
The proposed new standard requires confirmation procedures for specific accounts. The PCAOB is retaining the requirement for the auditor to perform confirmation procedures for receivables, but also is proposing to expand the requirement to receivables that arise from credit sales, loans, or other transactions. The PCAOB is proposing to require the auditor to perform confirmation procedures for cash and other relationships with financial institutions. |
