An external confirmation is defined as audit evidence obtained as a direct written response to the auditor from a third party (the confirming party), either in paper form or by electronic or other medium (e.g., through the auditors direct access to information held by a third party).

Required:

1. List the factors that affect the reliability of confirmations.

2. One of the allegations in a recent fraud was that confirmations of account balances to various banks were determined to be forgeries. Auditing standards state that an audit rarely involves the authentication of documentation, nor is the auditor trained as or expected to be an expert in such authentication. What steps could the auditors have taken to ensure that bank confirmations were reliable?

3. Refer back to EarthWear Clothiers financial statements included after Chapter 1 and identify any information on EarthWears financial statements that might be verified through the use of confirmations.