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Evolution of Auditing and Electronic Confirmations

Evolution of Auditing and Electronic Confirmations

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Running head: EVOLUTION OF AUDITING AND ELECTRONIC CONFIRMATIONS 1

Evolution of Auditing and Electronic Confirmations

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EVOLUTION OF AUDITING AND ELECTRONIC CONFIRMATIONS 2

There is no doubt about the important place held by the confirmation process during

audits. While the paper process had been essential in the past, its use has come under scrutiny

with the introduction of electronic confirmations. The American Institute of Certified Public

Accountants (AICPA) has been at the forefront of promoting electronic confirmation as the best

alternative due to its ability to consume less time (Capital Confirmation, 2010). The confirmation

process is done best using the electronic media as it goes a long way to gather sufficient,

relevant, and reliable audit evidence. Despite the hype around electronic confirmation, auditors

need to be extra vigilant while dealing with this approach. There is a need to ensure that auditing

standards are adhered to. For example, “online inquiry of a third party’s database” and

“confirmations sent or received via e-mail” should not be regarded as reliable (Boomer, 2010).

One misstatement that is likely to occur is the misappropriation of assets. With this

misstatement contributing to 92.7% of all fraud and the private companies largely involved

(41.8%), there is the need for companies such as DELiA*s to be keenly scrutinized (Capital

Confirmation, 2010). To identify this misstatement, the auditor needs to know which assets are

most vulnerable to fraud, the level of transaction, and the inherent risk. Cash is the most targeted

asset at 93.4% thus making it an area of particular interest to all auditors. It is also wise to have

an in depth look at the non-cash assets since some fraudsters can target those with high

transactional value.

The misstatement of assets can have a significant effect on the financial position of the

company thus painting a false picture to users of this information. Credit analysts are one

particular user group who might be deceived by a fraudulent company seeking working capital

financing. The company, for example, might exaggerate their accounts receivable to reflect an

increase in its current assets. This will be used to present a favourable credit position as its

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Evolution of Auditing and Electronic Confirmations Name Instructor Institution Date There is no doubt about the important place held by the confirmation process during audits. While the paper process had been essential in the past, its use has come under scrutiny with the introduction of electronic confirmations. The American Institute of Certified Public Accountants (AICPA) has been at the forefront of promoting electronic confirmation as the best alternative due to its ability to consume less time (Capital Confirmation, 2010). The confirmation process is done best using the electronic media as it goes a long way to gather sufficient, relevant, and reliable audit evidence. Despite the hype around electronic confirmation, auditors need to be extra vigilant while dealing with this approach. There is a need to ensure that auditing standards are adhered to. For example, "online inquiry of a third party's database" and "confirmations sent or received via e-mail" should not be regarded as reliable (Boomer, 2010). One misstatement that is likely to occur is the misappropriation of assets. With this misstatement contributing to 92.7% of all fraud and the private companies largely involved (41.8%), there is the need for companies such as DELiA*s to be keenly scrutinized (Capital Confirmation, 2010). To identify this misstatement, the auditor needs to know which assets are most vulnerable to fraud, the level of transaction, and the inherent risk. Cash is the most targeted ...
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