Management's Refusal to Allow Confirmation Requests
## Management's Refusal to Allow External Confirmations
When management refuses to allow the auditor to send confirmation requests, the auditor must follow the PIE protocol:
Mnemonic
Step
Action
P
Perform
Perform alternative audit procedures to obtain relevant and reliable audit evidence
I
Inquire
Inquire as to management's reason for refusal and seek evidence of its validity and reasonableness
E
Evaluate
Evaluate the implications on the auditor's assessment of ROMM, including fraud risk
### When Refusal is Unreasonable OR Alternative Procedures Fail
If the auditor concludes that:
The refusal is unreasonable, OR
Sufficient appropriate audit evidence (SAAE) cannot be obtained from alternative procedures
The auditor must:
1. Communicate with TCWG
2. Determine implications for the audit opinion → modify report under SA 705
### Alternative Audit Procedures by Balance Type
Accounts Receivable:
Subsequent cash receipts
Shipping documentation
Sales near period-end
Accounts Payable:
Subsequent cash disbursements
Correspondence from third parties
Other records (e.g., goods received notes)
### Why Must the Auditor Investigate the Reasons?
A refusal is a limitation on audit evidence. Management commonly cites legal disputes or ongoing negotiations. However, the auditor must verify validity because management may be attempting to conceal fraud or error. Accepting the stated reason at face value is not sufficient.
Worked example
### Example 1
Scenario: Management of ABC Ltd refuses to let the auditor send confirmation requests to debtors, citing an ongoing legal dispute with a major customer.
PIE Response:
P: Perform alternatives — examine subsequent cash receipts from those debtors and review dispatch/shipping records.
I: Inquire formally about the legal dispute, review legal correspondence, and assess whether the timing genuinely justifies withholding confirmation.
E: Assess whether refusal elevates fraud risk or ROMM for accounts receivable.
Conclusion: If the legal dispute explanation is found unreasonable (e.g., no actual dispute exists), the auditor communicates with TCWG and considers a qualified/disclaimer of opinion under SA 705.
### Example 2
Scenario: Auditor of XYZ Ltd performs all feasible alternative procedures after management's refusal but still cannot obtain SAAE for a material debtors balance.
Outcome: The auditor has a scope limitation on a material item. The auditor must:
1. Communicate the limitation to TCWG.
2. Modify the audit opinion under SA 705 — likely a qualified opinion (material but not pervasive) or disclaimer of opinion (pervasive scope limitation).
⚠️ Common exam mistakes
Accepting management's refusal and directly jumping to alternatives without first inquiring about and documenting management's reasons — all three PIE steps are mandatory.
Omitting communication with TCWG when alternative procedures also fail — this is a mandatory step, not discretionary.
Confusing 'management's refusal to send confirmations' with 'non-response from a confirming party' — these are distinct situations with different audit responses.
Not re-assessing fraud risk after a refusal — a refusal should automatically trigger heightened scepticism and a fresh fraud-risk evaluation.
Assuming one successful alternative procedure is enough — the auditor must obtain SAAE, which may require multiple alternative procedures.
Bare-Act text Para 8 & Para 9 · SA 505 – External Confirmations (ICAI) · click to expand
If management refuses to allow the auditor to send a confirmation request, the auditor shall: (a) inquire as to management's reasons for the refusal, and seek audit evidence as to their validity and reasonableness; (b) evaluate the implications of management's refusal on the auditor's assessment of the relevant risks of material misstatement, including the risk of fraud, and on the nature, timing and extent of other audit procedures; and (c) perform alternative audit procedures designed to obtain relevant and reliable audit evidence. If the auditor concludes that management's refusal is unreasonable, or the auditor is unable to obtain relevant and reliable audit evidence from alternative audit procedures, the auditor shall communicate with those charged with governance and shall also determine the implications for the audit and the auditor's opinion in accordance with SA 705.