1. Simply Soups Inc. Background and Case Introduction
Electronic Confirmation Process
Simply Soups Inc.
Background and Case Introduction
edu.Confirmation.com
© 2013 Dr. Denise Hanes, Dr. Barbara Porco, and Dr. Jay Thibodeau
Used with Permission. All rights reserved.

2. Session ONE Case Study Kick-off
© 2013 Dr. Denise Hanes, Dr. Barbara Porco, and Dr. Jay Thibodeau
Used with Permission. All rights reserved.

3. Objectives: Audit Objectives
To develop critical think skills by identifying risks in the confirmation process
To evaluate the persuasiveness of confirmation responses and recognize alternative audit procedures for confirmations
Practical Objectives
To utilize an electronic confirmation platform
Regulatory Objectives
To understand the proposed confirmation standard
To understand the audit documentation standard
Share the objectives of the case study.
Technical Objective
To understand the steps necessary to evaluate a third party intermediary’s control environment
© 2013 Dr. Denise Hanes, Dr. Barbara Porco, and Dr. Jay Thibodeau
Used with Permission. All rights reserved.

4. External Confirmation“
Audit evidence obtained as a direct written response to the auditor from a third party in paper form, or by electronic or other medium. ”
Define the confirmation process.
Source of definition: ISA 505 in agreement with interim proposed standard on confirmations by the PCAOB.
Consistent with AU 330.
© 2013 Dr. Denise Hanes, Dr. Barbara Porco, and Dr. Jay Thibodeau
Used with Permission. All rights reserved.

5. External Confirmation
The confirmation process includes:
Selecting items for confirmation
Designing the request
Communicating the request to the appropriate third party
Obtaining the response
Evaluating the information received, including its reliability
Source: AU
Explain that confirmations are used extensively on audits. They are used during substantive test-work and can provide reliable evidence for one or many assertions, depending on their design.
The process for confirmation test-work remains the same whether they are paper-based or electronic.
Guidance for confirmations:
AU 330-The Confirmation Process (SAS 67)
AU 9330-The Confirmation Process: Auditing Interpretations of Section 330
PCAOB Statement on Proposed Auditing Standard Related to Confirmation
ISA 505-The Confirmation Process
Per the proposed standard:
Paragraph 18- The auditor should design confirmation requests to establish direct communication between the confirming party and the auditor to minimize the possibility that the audit evidence resulting from the confirmation procedures might not be reliable as a result of interception, alteration, or fraud.
© 2013 Dr. Denise Hanes, Dr. Barbara Porco, and Dr. Jay Thibodeau
Used with Permission. All rights reserved.

6. The Confirmation Process
Auditors should …
Exercise professional skepticism
Authenticate responding entity
Validate authorized respondent
Maintain control
Directly communicate with the respondent
© 2013 Dr. Denise Hanes, Dr. Barbara Porco, and Dr. Jay Thibodeau
Used with Permission. All rights reserved.

7. Electronic Confirmations
The ASB and IAASB state that electronic confirmations can be considered reliable audit evidence if the auditor is satisfied that…
The process is secure and properly controlled
There is direct communication
The information is obtained from a third party who is the intended respondent
Note that even though the following guidance applies to paper based as well as electronic confirmations, there are unique factors to consider when using the electronic process.
The auditor should design confirmation requests to establish direct communication between the confirming party and the auditor to minimize the possibility that the audit evidence resulting from the confirmation procedures might not be reliable as a result of interception, alteration, or fraud.
The auditor should assess the reliability of confirmation responses. Any confirmation response carries some risk of interception, alteration, or fraud although such risks are mitigated by properly designing confirmation requests and properly performing confirmation procedures. Such risk exists regardless of whether a response is obtained in paper form or by electronic or other medium.
Factors that the auditor should take into account in assessing the reliability of confirmation responses include, but are not limited to, whether confirmation responses:
Are returned to the auditor indirectly because the confirming parties forwarded the confirmation responses to the company.
Appear not to have come from the originally intended confirming parties.
Contradict other information obtained during the audit.
Come from addresses other than the address to which the auditor sent the confirmation requests.
Are not the original confirmation requests that were sent to the confirming parties.
Do not include the signatures of or acknowledgements by the confirming parties.
Reflect local customs that may affect the confirmation responses, such as customs that create an environment in which confirmation responses are inherently unreliable.
© 2013 Dr. Denise Hanes, Dr. Barbara Porco, and Dr. Jay Thibodeau
Used with Permission. All rights reserved.

8. Electronic Confirmations: RISKS
Reliability Risks
Process might not be secure or properly controlled
Respondent is not authorized to respond
Integrity of the transmission might have been compromised
Discuss the unique risks of using electronic confirmations as compared to the traditional paper-based approach.
The audit standard tells us in order to use electronic confirmations, we must assess the controls that the provider has in place to verify the authenticity of each financial institution and vendor as well as maintain control/security over the process.
© 2013 Dr. Denise Hanes, Dr. Barbara Porco, and Dr. Jay Thibodeau
Used with Permission. All rights reserved.

9. Electronic Confirmation Controls
If an intermediary is used to facilitate confirmations, the AUDITOR should obtain an understanding of the controls over the procedures used by the intermediary to process the confirmation requests and responses.
Tell the students that we will be working with edu.Confirmation.com. This is the educational platform created by Confirmation.com specifically for use with these case materials.
Confirmation.com is the web-based audit confirmation provider and creator of electronic audit confirmations that helps bring efficiency and security to the electronic confirmation process. Security is the cornerstone of the electronic process and confirmation.com must meet certain security requirements needed for the auditor to maintain control over the process and protect sensitive information
© 2013 Dr. Denise Hanes, Dr. Barbara Porco, and Dr. Jay Thibodeau
Used with Permission. All rights reserved.

10. AS No. 3: Audit Documentation
The written record that provides the support for the representations in the auditor's report should:
Demonstrate compliance with the standards
Support the basis for conclusions reached
Demonstrate that the underlying accounting records agree or reconcile with the financial statements
Audit documentation is the written record that provides the support for the representations in the auditor's report.
It should:
Demonstrate that the engagement complied with the standards,
Support the basis for the auditor's conclusions concerning every relevant financial statement assertion, and
Demonstrate that the underlying accounting records agreed or reconciled with the financial statements.
Discuss how these objectives are achieved during confirmation test-work.
Examples of typical audit documentation for the confirmation process would include:
Memos or narratives describing significant risks, assertions being tested and sample selection.
Control Logs
Confirm responses received from third parties
Resolution of responses
Documentation of alternate procedures
Conclusion of test-work
© 2013 Dr. Denise Hanes, Dr. Barbara Porco, and Dr. Jay Thibodeau
Used with Permission. All rights reserved.

11. AS No. 3: Audit Documentation
Remember
Unless you properly DOCUMENT AND RETAIN EVIDENCE of your work, others will not be able to rely on the testing performed.
Explain to the participants that unless their work is properly documented and retained in accordance with AS 3, others will not be able to rely on the testing performed.
Per AS 3, the following groups are likely to rely on another auditors documentation to understand and evaluate the work performed:
New auditors
Supervisors on the engagement
Engagement quality reviewers
Successor auditors
Internal and external inspection teams
Other advisors
© 2013 Dr. Denise Hanes, Dr. Barbara Porco, and Dr. Jay Thibodeau
Used with Permission. All rights reserved.

12. Why Confirm Cash?
Provides audit evidence to address the risk of material misstatement due to fraud and because of the importance of cash to a company’s liquidity and ongoing operations.
High profile fraud cases involving the overstatement of cash:
Olympus – Billions of dollars in cash overstated and hidden for 14 years due to hidden guarantees
Parmalat - $4.9Billion of cash overstated due to fraudulent cash confirmations over 10 year period
Healthsouth - $400Million of cash overstated, hidden in lots of small accounts because audit procedures called for confirming only large account balances
© 2013 Dr. Denise Hanes, Dr. Barbara Porco, and Dr. Jay Thibodeau
Used with Permission. All rights reserved.

13. Case Study
You: Audit Staff Firm: Putnam and Jacobs LLP Client: Simply Soups Inc. Year End: December 31, 2013 Task: Complete the audit step “Confirm Cash Balances” Use: Positive blank confirmations Service: edu.Confirmation.com
Explain the “positive confirmation” to the class.
A positive cash confirmation request can be defined as a “request that the confirming party respond directly to the auditor indicating whether the confirming party agrees or disagrees with the information in the request, or providing the requested information. (ISA 500, 411)
Per the PCAOB proposed standard, a risk associated with positive confirmations is “that a confirming party will reply to the confirmation request without verifying that the information is correct”. To reduce this risk, a blank confirmation can be sent to the confirming party.
When confirming the cash accounts, you should include the account number but do not fill in the balance or amount on the confirmation request. Instead, you rely on the confirming party to fill in the amount.
© 2013 Dr. Denise Hanes, Dr. Barbara Porco, and Dr. Jay Thibodeau
Used with Permission. All rights reserved.

14. edu.Confirmation.com https://edu.confirmation.com/home.aspx
Before giving the students the logistics of the cash study :
Watch the tutorial for edu.Confirmation.com in class.
(if the link does not work you can cut and paste into a browser.)
edu.Confirmation.com.
Refer to the professor’s instruction guide for suggested points to stress during the tutorial.
© 2013 Professor Brian Fox. Edu.Confirmation.com
Used with Permission. All rights reserved.

15. Case Study Materials Download from: edu.Confirmation.com Includes:
Simply Soups Inc. Case Study
Audit Procedure Checklist
Confirmation Testing Workpaper and Memo
Client Audit Materials
Trial Balance
Cash Lead Sheet
Bank Reconciliation Summary
Bank Account Listing
Instructional Guide for Student
A true step-by-step handbook
edu.Confirmation.com Shortcuts
Trouble Shooting Checklist
Technical Guide
Students should download the case materials directly from the edu.Confirmation.com website.
© 2013 Dr. Denise Hanes, Dr. Barbara Porco, and Dr. Jay Thibodeau
Used with Permission. All rights reserved.

16. 177 Washington Lane, Cherry Hill, NJ 08034
Trial Balance
Simply Soups Inc.
PBC
177 Washington Lane, Cherry Hill, NJ 08034
Trial Balance
As of December 31, 2013
Debit
Credit
Cash - Acct
10001 Fifth Federal
478,921.54 A
10002 Sparkasse-Frankfurt
235,087.29
10003 American NorthWest Bank
144,019.83
10004 BNY Federal
477,832.15
10005 Tenth National Bank
301,015.18
10006 Bank of Citizens
348,701.60
1,985,577.59
Accounts Receivable - Acct
Tick Legend
The sum of this balance was agreed into the Balance Sheet without exception, W. Downey (Intern)
Prepared by client
See the professor’s instructional guide for suggested details on each document. The Document is represented as EXHIBIT 1.

17. Cash Lead Sheet
Tick Legend
Cash Lead Sheet TB Agreed to 12/31/2013 Trial Balance without exception.
Simply Soups Inc PQ Agreed to 9/30/2013 Trial Balance without exception.
As of December 31, PY Agreed to 12/31/2012 Trial Balance without exception.
Account
Balance 12/31/13 TB
Balance 9/30/13 PQ
Change from 9/30/13 to 12/31/13 ($)
Change from 9/30/13 to 12/31/13 (%)
Balance 12/31/12 PY
Change from 12/31/12 to 12/31/13 ($)
Change 12/31/12 to 12/31/13 (%)
10001
Fifth Federal
$478,922
$492,531
($13,610)
-2.76%
$489,120
-$10,198
-2.09%
10002 Sparkasse-Frankfurt
$235,087
$229,791
$5,296
2.30%
$231,686
$3,401
1.47%
10003 American NorthWest Bank
$144,020
$151,675
($7,655)
-5.05%
$149,277
-$5,257
-3.52%
10004
BNY Federal
$477,832
$462,403
$15,429
3.34%
$469,513
$8,319
1.77%
10005
Tenth National Bank
$301,015
$311,653
($10,638)
-3.41%
$316,987
-$15,972
-5.04%
10006
Bank of Citizen
$348,702
$309,243
$39,458
12.76%
$311,785
$36,917
11.84%
See the professor’s instructional guide for suggested details on each document. The Document is represented as EXHIBIT 2.

18. Bank Reconciliation Summary
Account
Bank Balance 12/31/13 A
Reconciling Items B
Book Balance 12/31/13 TB
10001
Fifth Federal
$508,219
$29,298
$478,922
10002
Sparkasse-Frankfurt
$315,712
$80,624
$235,087
10003
American NorthWest Bank
$121,987
($22,033)
$144,020
10004
BNY Federal
$493,154
$15,322
$477,832
10005
Tenth National Bank
$312,580
$11,565
$301,015
10006
Bank of Citizens
$304,312
($44,389)
$348,702
Tick Legend
Agreed to 12/31/2013 Bank Statements without exception.
Reconciling items were tested without exception, see Bank Test Documentation (Audit Step ).
Agreed to 12/31/2013 Trial Balance without exception.
See the professor’s instructional guide for suggested details on each deliverable. The Document is represented as EXHIBIT 3.

19. Bank Account Listing Bank Name Bank Address Bank Manager Account Name
Account Numbers
Authorized Signer
Fifth Federal
73 Union Street
New York NY 10001
George Williams
Checking
Lou Jennings
Sparkasse-Frankfurt
Landstrasse Frankfurt DE
Helga Jones
American NorthWest Bank
234 Market Street Milwaukee WI 53202
Richard Johnson
BNY Federal
3621 Avenue De Lafayette Boston MA 02111
Betty Smith
Savings
Tenth National Bank
313 S. Chadwick Street Philadelphia PA 19103
Greg Fordham
Bank of Citizens
3621 Union Ave Denver CO 80220
Denise Bentley
Provides the students with the accounts that need to be confirmed through edu.Confirmation.com. All teams should enter the first 4 accounts. Students/teams doing the advanced confirmations will also set up the last 2 accounts. The Document is represented as EXHIBIT 4.

20. Overview of Steps Task Date Initial Register at edu.Confirmation.com
Watch 3-minute tutorial
Review client documents and audit workpapers
Assess controls in place around the edu.Confirmation.com service
Set up client
Enable sharing for team members*
Add bank accounts
Request Client Authorization Code approval
(client’s electronic signature)
Initiate confirmations
Evaluate responses
Initiate second requests or reconfirmations
Evaluate responses and complete deliverables
Review the logistics of the case study listed on the slide. The Document is represented as abbreviated version of Appendix A.
Register as a new user on edu.Confirmation.com. Remind students to use their school .
Encourage students to go through the tutorial again on their own.
Examine the materials provided to them.
Set up the client. REMINDER: if they are working in a group, only one member should set up the new client.
Add the bank accounts from the information provided to them from the client.
It is important that all confirmations are initiated at the same time. This will prevent the student from having trouble with the Authorization Code.
The Authorization Code (also sometimes referred to as the AUD) is the client’s electronic signature. For control purposes, the Authorization Code is only valid for a limited time (usually 30 days) and number of initiations (usually 3).
Remind the students that they are confirming as of 12/31/2013.
When the confirm is initiated, the students will see an invoice that is charged to the engagement. They must accept the charge however this is NOT an actual charge to them.
© 2013 Dr. Denise Hanes, Dr. Barbara Porco, and Dr. Jay Thibodeau
Used with Permission. All rights reserved.
* This step is only necessary if teams are used.

21. Confirmation Testing Workpaper
Simply Soups Inc.
As of December 31, 2013
Account
Reconciled Bank Balance as of 12/31/13 (per Client) A
Confirmed Bank Balance as of 12/31/13 (per Bank)
Differences Noted
10001 Fifth Federal
$508,219.33
10002 Sparkasse-Frankfurt
$315,711.76
10003 American NorthWest Bank
$121,987.17
10004 BNY Federal
$493,154.12
10005 Tenth National Bank
$312,580.29
10006 Bank of Citizens
$304,312.43
Tick Legend
A Balances were traced from Bank Reconciliation Testing Summary (WP 100-2).
Deliverables and documentation of results; The Document is represented as Appendix B.
See the professor’s instructional guide for suggested details on each deliverable.
STUDENT WORKPAPER DELIVERABLE

22. Evaluating Responses
Agree confirmed detail to the bank account listing on the key information summary;
Agree confirmed balances to the reported bank balance on the bank reconciliation testing summary;
Is the confirmation persuasive audit evidence?
NOTE: If the confirmation is not persuasive audit evidence, additional confirmation requests may be sent or alternate procedures may be performed.
Persuasive audit evidence:
(PCAOB proposed standard paragraphs 22, and 36-38).
© 2013 Dr. Denise Hanes, Dr. Barbara Porco, and Dr. Jay Thibodeau
Used with Permission. All rights reserved.

23. Deliverables Completed Audit Procedure Checklist
Completed Confirmation Testing Workpaper and Memo
Workpaper:
Evaluation of initial confirmations
Evaluation of reconfirmations or second confirmations (where necessary)
Any additional steps or risks
Memo:
Purpose for sending positive confirmations
Reasons for using a third-party intermediary
Risks involved in using a third-party intermediary
Steps taken to gain comfort over such risks
Assessment of whether the work performed provides the basis to reach a conclusion on the financial statement assertions tested
Confirmation Log
Received Confirmations
Deliverables and documentation of results
See the professor’s instructional guide for suggested details on each deliverable.
1 Completed Audit Procedure Checklist -Provided in the Case Materials
3 Confirmation Log -From the dashboard, select the client, then under the Confirmation Statuses section, select view log and then select export.
4 Received Confirmations -Download copies of all completed confirmations from the Reports Tab
© 2013 Dr. Denise Hanes, Dr. Barbara Porco, and Dr. Jay Thibodeau
Used with Permission. All rights reserved.

24. Students may work individually or in groups!
Audit Team
Some of the audit procedures for obtaining audit evidence for CASH has already been performed by:
Audit Intern
Audit Associate
Instructor serves as the Audit Manager
Students may work individually or in groups!
The case study can be done individually or in teams of up to 5 people. Ideally, and if the class size allows it, students get the most out of the case study by working individually or in smaller teams of 2 or 3.
© 2013 Dr. Denise Hanes, Dr. Barbara Porco, and Dr. Jay Thibodeau
Used with Permission. All rights reserved.

25. QUESTIONS? End of Session ONE
© 2013 Dr. Denise Hanes, Dr. Barbara Porco, and Dr. Jay Thibodeau
Used with Permission. All rights reserved.