SA 505 — External Confirmations

Issued by ICAI AASB · Audit Evidence

Direct confirmations from third parties — design, sending, follow-up, evaluation.

Objective

To design and perform external confirmation procedures to obtain relevant and reliable audit evidence.

Key requirements

Auditor maintains control over the confirmation request — including the wording, dispatch, and receipt
Selection of the confirming party that is the appropriate source
Investigation of any exceptions identified
Where management refuses to allow a confirmation, evaluation of reasons and impact on the audit
Negative confirmation acceptable only in narrow circumstances

Typical procedures

Direct bank confirmations to all banks dealt with during the year
Trade receivables / payables confirmations on a sample basis
Confirmation of investments held with custodians or RTAs

Common pitfalls

Confirmations dispatched by client — breaks auditor control
Non-response not followed up with alternative procedures
Bank confirmation list incomplete (forgot the bank guarantee bank, the FCNR bank, etc.)

SA 505 in practice

SA 505 sits in the Audit Evidence phase of the audit. The Standards on Auditing are issued by the ICAI Auditing and Assurance Standards Board (AASB) and deemed to be prescribed by the Central Government under Section 143(10) of the Companies Act 2013. Compliance with SAs is mandatory for every audit conducted by a Chartered Accountant in India.

For authoritative text, refer to the ICAI AASB Compendium of Standards on Auditing at icai.org.

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