ACCA Advanced Audit and Assurance (AAA) Practice Exam

What are external confirmations in auditing?

1. Written responses from auditors to management

2. Evidence obtained directly from a third party

3. Reports generated from internal audits

4. Confirmations sent by email to stakeholders

The correct answer is: Evidence obtained directly from a third party

External confirmations in auditing are evidence obtained directly from a third party. This means that the auditor seeks to verify specific information concerning transactions or balances by obtaining responses from independent external sources. For instance, an auditor may request confirmation of an account balance from a bank where a client holds an account to ensure the balance reported by the client is valid and accurate. This method is particularly valuable in providing reliable and objective evidence as it relies on information that is not influenced by the client’s internal processes or management assertions. The direct communication with an independent party enhances the credibility of the confirmation obtained, as opposed to information that originates from the client’s internal records. Other options do not align with the definition of external confirmations. For example, responses from auditors to management would not constitute an external confirmation; instead, they are part of the auditor's communication with their client. Reports generated from internal audits are internal documents and do not involve independent third parties, thus lacking the external perspective required for confirmation purposes. Confirmations sent by email may be a form of communication, but not all emails provide the necessary validation from a third party and are not inherently classified as external confirmations without the independent verification aspect.