Electronic Confirmation Process edu.Confirmation.com Simply Soups Inc. Background and Case...

Electronic Confirmation Process

edu.Confirmation.com

Simply Soups Inc. Background and Case Introduction

© 2013 Dr. Denise Hanes, Dr. Barbara Porco, and Dr. Jay ThibodeauUsed with Permission. All rights reserved.

Session ONECase Study Kick-

off

2© 2013 Dr. Denise Hanes, Dr. Barbara Porco, and Dr. Jay ThibodeauUsed with Permission. All rights reserved.

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Objectives: • To develop critical think skills by identifying

risks in the confirmation process• To evaluate the persuasiveness of confirmation

responses and recognize alternative audit procedures for confirmations

Audit Objectives

Practical Objectives

Regulatory Objectives

Technical Objective

• To utilize an electronic confirmation platform

• To understand the proposed confirmation standard

• To understand the audit documentation standard

• To understand the steps necessary to evaluate a third party intermediary’s control environment


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Audit evidence obtained as a direct written response to the auditor from a

third party in paper form, or by

electronic or other medium.

”

“


External Confirmation

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Selecting items for confirmation

Designing the request

Communicating the request to the appropriate third party

Obtaining the response

Evaluating the information received, including its reliability

External Confirmation

The confirmation process includes:


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Auditors should …• Exercise professional skepticism

• Authenticate responding entity

• Validate authorized respondent

• Maintain control

• Directly communicate with the respondent

The Confirmation Process


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The process is secure and properly controlled

There is direct communication

The information is obtained from a third party who is the intended respondent

Electronic Confirmations

The ASB and IAASB state that

electronic confirmations

can be considered

reliable audit evidence if the

auditor is satisfied that…


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Reliability Risks

• Process might not be secure or properly controlled

• Respondent is not authorized to respond

• Integrity of the transmission might have been compromised

Electronic Confirmations: RISKS


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If an intermediary is used to facilitate confirmations, the AUDITOR should obtain an

understanding of the controls over the procedures used by the

intermediary to process the confirmation requests and

responses.

Electronic Confirmation Controls


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The written record that provides the support for the representations in the auditor's report should:• Demonstrate compliance with

the standards• Support the basis for

conclusions reached• Demonstrate that the

underlying accounting records agree or reconcile with the financial statements

AS No. 3: Audit Documentation


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Unless you properly DOCUMENT

AND RETAIN EVIDENCE

of your work, others will not be able to

rely on the testing performed.

Remember


AS No. 3: Audit Documentation

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Provides audit evidence to address the risk of material misstatement due

to fraud and because of the

importance of cash to a company’s

liquidity and ongoing operations.

Why Confirm Cash?


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You: Audit StaffFirm: Putnam and Jacobs LLPClient: Simply Soups Inc.Year End: December 31, 2013

Task: Complete the audit step “Confirm Cash Balances”

Use: Positive blank confirmations Service: edu.Confirmation.com

Case Study


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https://edu.confirmation.com/home.aspx

edu.Confirmation.com

© 2013 Professor Brian Fox. Edu.Confirmation.comUsed with Permission. All rights reserved.



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Download from: edu.Confirmation.comIncludes:• Simply Soups Inc. Case Study

– Audit Procedure Checklist– Confirmation Testing Workpaper and

Memo– Client Audit Materials

• Trial Balance• Cash Lead Sheet• Bank Reconciliation Summary• Bank Account Listing

• Instructional Guide for Student– A true step-by-step handbook– edu.Confirmation.com Shortcuts– Trouble Shooting Checklist– Technical Guide

Case Study Materials


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Trial BalanceSimply Soups Inc. PBC

177 Washington Lane, Cherry Hill, NJ 08034609-555-5555 Trial Balance

As of December 31, 2013 Debit Credit Cash - Acct. 10000

10001 Fifth Federal 478,921.54 A 10002 Sparkasse-Frankfurt 235,087.29 10003 American NorthWest Bank 144,019.83 10004 BNY Federal 477,832.15 10005 Tenth National Bank 301,015.18 10006 Bank of Citizens 348,701.60 1,985,577.59 Accounts Receivable - Acct. 11000 Tick Legend

A The sum of this balance was agreed into the Balance Sheet without exception, W. Downey (Intern)

PBC Prepared by client

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Cash Lead SheetCash Lead Sheet TB Agreed to 12/31/2013 Trial Balance without exception.

Simply Soups Inc. PQ Agreed to 9/30/2013 Trial Balance without exception.

As of December 31, 2013 PY Agreed to 12/31/2012 Trial Balance without exception.

AccountBalance 12/31/13 TB

Balance 9/30/13 PQ

Change from

9/30/13 to 12/31/13

($)

Change from

9/30/13 to 12/31/13

(%)Balance 12/31/12 PY

Change from

12/31/12 to 12/31/13

($)

Change 12/31/12

to 12/31/13

(%)10001 Fifth Federal $478,922 $492,531 ($13,610) -2.76% $489,120 -$10,198 -2.09%10002 Sparkasse-Frankfurt $235,087 $229,791 $5,296 2.30% $231,686 $3,401 1.47%10003 American NorthWest Bank $144,020 $151,675 ($7,655) -5.05% $149,277 -$5,257 -3.52%10004 BNY Federal $477,832 $462,403 $15,429 3.34% $469,513 $8,319 1.77%10005 Tenth National Bank $301,015 $311,653 ($10,638) -3.41% $316,987 -$15,972 -5.04%10006 Bank of Citizen $348,702 $309,243 $39,458 12.76% $311,785 $36,917 11.84%

Tick Legend

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Bank Reconciliation Summary

Account

Bank Balance

12/31/13A Reconciling

ItemsB

Book Balance

12/31/13TB

10001 Fifth Federal $508,219 $29,298 $478,922 10002 Sparkasse-Frankfurt $315,712 $80,624 $235,087 10003 American NorthWest Bank $121,987 ($22,033) $144,020 10004 BNY Federal $493,154 $15,322 $477,832 10005 Tenth National Bank $312,580 $11,565 $301,015 10006 Bank of Citizens $304,312 ($44,389) $348,702

Tick Legend

A Agreed to 12/31/2013 Bank Statements without exception. B Reconciling items were tested without exception, see Bank Test Documentation (Audit Step 1000-3).

TB Agreed to 12/31/2013 Trial Balance without exception.

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Bank Account Listing

Bank Name Bank Address Bank ManagerAccount

NameAccount Numbers

Authorized Signer

Fifth Federal 73 Union Street New York NY 10001 George Williams Checking 675-42223 Lou Jennings

Sparkasse-Frankfurt Landstrasse 89-21 Frankfurt 60326 DE Helga Jones Checking 44-322711 Lou Jennings

American NorthWest Bank

234 Market Street Milwaukee WI 53202 Richard Johnson Checking 05-198305 Lou Jennings

BNY Federal3621 Avenue De

Lafayette Boston MA 02111

Betty Smith Savings 061-22031 Lou Jennings

Tenth National Bank 313 S. Chadwick Street Philadelphia PA 19103 Greg Fordham Savings 26-798422 Lou Jennings

Bank of Citizens 3621 Union Ave Denver CO 80220 Denise Bentley Checking 89-123661 Lou Jennings

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Overview of StepsTask Date Initial

Register at edu.Confirmation.com

Watch 3-minute tutorial

Review client documents and audit workpapers

Assess controls in place around the edu.Confirmation.com service

Set up client

Enable sharing for team members*

Add bank accounts

Request Client Authorization Code approval (client’s electronic signature)

Initiate confirmations

Evaluate responses

Initiate second requests or reconfirmations

Evaluate responses and complete deliverables


* This step is only necessary if teams are used.

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Confirmation Testing WorkpaperConfirmation Testing Workpaper

Simply Soups Inc.As of December 31, 2013

AccountReconciled Bank

Balance as of 12/31/13

(per Client) A

Confirmed Bank Balance as of 12/31/13 (per

Bank) Differences Noted

10001 Fifth Federal $508,219.33

10002 Sparkasse-Frankfurt $315,711.76

10003 American NorthWest Bank $121,987.17

10004 BNY Federal $493,154.12

10005 Tenth National Bank $312,580.29

10006 Bank of Citizens $304,312.43

Tick Legend

A Balances were traced from Bank Reconciliation Testing Summary (WP 100-2).

STUDENT WORKPAPER DELIVERABLE

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1. Agree confirmed detail to the bank account listing on the key information summary;

2. Agree confirmed balances to the reported bank balance on the bank reconciliation testing summary;

3. Is the confirmation persuasive audit evidence?

NOTE: If the confirmation is not persuasive audit evidence, additional confirmation requests may be sent or

alternate procedures may be performed.

Evaluating Responses


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1. Completed Audit Procedure Checklist2. Completed Confirmation Testing Workpaper and

MemoWorkpaper:

• Evaluation of initial confirmations• Evaluation of reconfirmations or second confirmations (where

necessary)• Any additional steps or risks

Memo: • Purpose for sending positive confirmations• Reasons for using a third-party intermediary• Risks involved in using a third-party intermediary• Steps taken to gain comfort over such risks• Assessment of whether the work performed provides the basis

to reach a conclusion on the financial statement assertions tested

3. Confirmation Log 4. Received Confirmations

Deliverables


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• Some of the audit procedures for obtaining audit evidence for CASH has already been performed by:– Audit Intern– Audit Associate

• Instructor serves as the Audit Manager

Audit Team

Students may work individually or in groups!


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End of Session ONE

QUESTIONS?


Electronic Confirmation Process edu.Confirmation.com Simply Soups Inc. Background and Case...

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