Audit evidence can be obtained either through basic accounting records or documents obtained from third parties upon request by the auditor. This technique of obtaining information from the third part is normally referred to as direct confirmation.
The quality of audit evidence generated by direct confirmation is very high because:
- It is obtained from independent external source and audit evidence is more reliable when it is obtained from independent sources outside the entity.
- It is documentary evidence and audit evidence is more reliable when it exists in documentary form, whether paper, electronic, or other medium. Typically, 3rd party confirmation calls for the evidence to be received through Debtors circularization process and Bank Standard letter.
Examples other than debtors’ confirmation techniques might also be used are as follows:
- Bank balances and other information from bankers
- Inventories held by third parties
- Property deeds held for safe keeping by third parties or purchased from stock-brokers but not delivered at the end of the reporting period
- Loans from lenders
- Accounts payable balances