ACCA Advanced Audit and Assurance (AAA) Practice Exam

External confirmations help the auditor to

1. Establish a relationship with third-party companies

2. Gather evidence supporting the accuracy of financial information

3. Prepare financial statements

4. Replace the need for internal audit procedures

The correct answer is: Gather evidence supporting the accuracy of financial information

External confirmations are a pivotal tool in the auditor's arsenal, specifically designed to gather evidence that supports the accuracy and validity of financial information presented by a company. By obtaining confirmation directly from third parties—such as banks, customers, or suppliers—auditors can corroborate balances, transactions, or other critical details. This process enhances the reliability of the financial information being audited, as it allows auditors to verify assertions made by management against independent sources. The nature of external confirmations—being independent and objective—provides a level of assurance that is often greater than other forms of evidence. For instance, when an auditor requests a confirmation of a cash balance from a bank, the response received not only reflects what the bank has on record but also serves as an external validation of the numbers reported on the company's financial statements. In contrast, the other options provided focus on other aspects of the auditing process that do not align directly with the primary purpose of external confirmations. For example, establishing relationships with third-party companies is not a primary goal of using confirmations; instead, it's about gathering credible evidence. Similarly, preparing financial statements is the responsibility of the company itself, and while auditors may assist in ensuring those statements are accurate, confirmations do not serve that purpose. Lastly,