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Audit Confirmation and Sampling Guide

A circularisation or confirmation letter is a written request sent by auditors to a third party to independently confirm specific financial information provided by a client. There are two types of confirmation letters: positive and negative. Stratified sampling is a sampling method where the population is divided into subgroups and then samples are randomly selected from each subgroup to ensure each subgroup is represented in proportion to its size.

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13 views2 pages

Audit Confirmation and Sampling Guide

A circularisation or confirmation letter is a written request sent by auditors to a third party to independently confirm specific financial information provided by a client. There are two types of confirmation letters: positive and negative. Stratified sampling is a sampling method where the population is divided into subgroups and then samples are randomly selected from each subgroup to ensure each subgroup is represented in proportion to its size.

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Батбилэг Үен
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Circularisation or Confirmation letter

-It is a written request sent by auditors to a 3rd party, such as a customer, vendor or financial
institution to independently confirm specific information related to a client.
-Helps auditors verify the accuracy and completeness of financial information provided by the
client
-There are 2 types: Positive and Negative confirmation
Positive confirmation:
-auditor asks the 3rd party to respond directly to the auditor, confirming the accuracy of the
information provided by the client.
-provide stronger evidence, because the 3rd party is required to take an affirmative action in
response, either confirming or correcting the information
Negative confirmation:
-auditor asks the 3rd party to respond only if they disagree with the information provided by the
client (to confirm that the information is accurate unless they have objections)
-used when auditors believe the risk of MM is low and they are seeking to reduce the cost and
effort of the confirmation process.
-if the 3rd party doesn’t respond, it is assumed that they agree with the information provided by
the client
-if 3rd party disagree or have discrepancies, they are expected to respond with details

How?
1. Auditors prepare a letter that includes specific details they want to confirm
2. Letter is sent directly to the 3rd party, who is asked to review the information and confirm its
accuracy
3. The 3rd party responds directly to the auditor, either confirming the details as accurate or
providing any discrepancies they find
4. Auditors compare the confirmed information with the client’s records to identify any
discrepancies or irregularities

Stratified sampling
-is a sampling method in audit where the population is divided into subgroups based on specific
characteristics and then samples are randomly selected from each sampling group, ensuring
that each subgroup is represented in the sample in proportion to its size in the population
-helps ensure that each subgroup within the population is represented in the sample, making
sample more reflective of the population’s diversity
-when there are significant differences between strata,stratified sampling can be more efficient
than simple random sampling, as it focuses efforts on the areas of interests
-more meaningful comparisons between different strata, making it easier to analyze differences
and similarities within the population
Example:
Auditor is conducting a survey on the job satisfaction of employees in a large company. Divides
it into different strata based on their job roles like managers, sales, administration staff
Managers:100 employees
Sales: 200 employees
Administration:150 employees
If the auditor wants a sample size of 30 employees for their study, the auditor might select 10
managers, 15 sales representatives and 5 administrative staff members randomly from each
stratum. This ensures that the auditor has a representative sample that accounts for the
diversity in job roles within the company.

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