## Results of External Confirmation Procedures

### Reliability of Responses

Situation	Auditor's Action
Doubts about reliability of a response	Obtain further audit evidence to resolve those doubts
Response determined to be not reliable	Evaluate implications on the Risk of Material Misstatement (ROMM) assessment

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### Negative Confirmations — When Permitted

Negative confirmations provide less persuasive audit evidence than positive confirmations.

Negative confirmations cannot be used as the sole substantive procedure for an assertion unless ALL FOUR conditions are met:

1. Low ROMM: Auditor has assessed ROMM as low AND obtained sufficient appropriate evidence on the operating effectiveness of controls relevant to the assertion.

2. Large, homogeneous population: Large number of small, homogeneous account balances, transactions, or conditions.

3. Very low exception rate expected: Based on prior experience or other evidence.

4. Recipients unlikely to disregard: Auditor is not aware of circumstances that would cause recipients to ignore the request.

> Memory aid: L-H-L-R — Low ROMM, Homogeneous population, Low exception rate expected, Recipients unlikely to disregard.

Worked example

### Example 1

Negative Confirmation — All 4 conditions met: Auditor is auditing a retail bank's savings accounts. Controls are strong (low ROMM), there are 10,000 accounts with small balances (large homogeneous population), historically no exceptions (very low exception rate), and customers actively monitor their balances (recipients won't disregard). All four conditions are met — negative confirmations may be used as the sole procedure.

### Example 2

Negative Confirmation — Condition NOT met: The entity has 200 large trade debtors with varying balances. Even if other conditions are met, the population is NOT homogeneous and balances are not small. Negative confirmations alone are insufficient — positive confirmations or alternative procedures are required.

### Example 3

Unreliable response: Auditor receives a confirmation back from a debtor but the envelope was resealed and appears to have been opened. Auditor has doubts about whether management intercepted and altered the response. Auditor must obtain further audit evidence (e.g., contact debtor directly by phone, examine remittance advices).

⚠️ Common exam mistakes

Treating ANY response to a negative confirmation as reliable — silence means agreement, but that agreement is weak; the confirming party may simply not have read the request.
Applying negative confirmations as the sole procedure when even ONE of the four conditions is not met — all four must be present simultaneously.
Ignoring doubts about response reliability — if there are any red flags (e.g., unusual postmark, management had access to outgoing mail), the auditor must investigate further rather than accepting the confirmation at face value.
Confusing 'low ROMM' with 'no controls testing' — the first condition for negative confirmations requires not just low inherent risk but also evidence of effective controls.

Bare-Act text Negative Confirmations · SA 505 — External Confirmations · click to expand

The auditor shall not use negative confirmation requests as the sole substantive audit procedure to address an assessed risk of material misstatement at the assertion level unless all of the following are present: (a) the auditor has assessed the risk of material misstatement as low and has obtained sufficient appropriate audit evidence regarding the operating effectiveness of controls relevant to the assertion; (b) the population of items subject to negative confirmation procedures comprises a large number of small, homogeneous, account balances, transactions, or conditions; (c) a very low exception rate is expected; and (d) the auditor is not aware of circumstances or conditions that would cause recipients of negative confirmation requests to disregard such requests.

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Results of Confirmation Procedures — Reliability and Negative Confirmations

Worked example

⚠️ Common exam mistakes