If your company undergoes an annual financial statement audit, your auditor will likely contact external parties — such as customers, vendors, banks, attorneys, or benefit plan administrators — to request independent confirmation of certain balances or information.
This may feel unnecessary or even disruptive to your internal accounting or finance team, especially when responses take time. However, these external confirmations serve a vital role: they provide independent, third-party evidence that supports the accuracy of your company’s financials.
Why Do Auditors Send Confirmations?
External confirmations help auditors independently verify important balances and disclosures — such as cash accounts, receivables, payables, and legal contingencies — instead of relying solely on internal records. According to U.S. Generally Accepted Auditing Standards (GAAS), a confirmation is a direct communication from a third party to the auditor, sent by mail or electronically.
For example, a confirmation might verify:
- A bank account balance,
- The terms of a loan,
- The existence or status of a legal claim.
By validating this information, confirmations help reduce the risk of material misstatements in the financial statements.
Three Types of Confirmations
The type of confirmation an auditor sends depends on the audit’s risk assessment and the nature of the account being tested. Common formats include:
- Positive Confirmations: Require a response regardless of whether the recipient agrees or disagrees with the information. Used in high-risk areas such as accounts receivable or legal matters.
- Negative Confirmations: A response is required only if the recipient disagrees with the information. Less intrusive but also less persuasive as evidence.
- Blank Confirmations: Ask the third party to supply specific details (e.g., account balances) rather than verify prefilled amounts. Stronger evidence, but more burdensome for the recipient.
Confirmed figures may need to be rolled forward or backward to align with the reporting date on the financial statements.
From Mailboxes to Secure Portals
While auditors once relied on physical mail, confirmations today are typically sent and received through secure electronic platforms. These tools accelerate the process, reduce the chance of tampering, and enhance efficiency. In fact, many financial institutions now accept only electronic confirmation requests.
In 2023, the Public Company Accounting Oversight Board (PCAOB) issued Auditing Standard (AS) No. 2310, The Auditor’s Use of Confirmation, which will take effect for public companies with fiscal years ending on or after June 15, 2025. The new standard:
- Recognizes electronic confirmations and third-party platforms,
- Retains the requirement to confirm accounts receivable,
- Introduces a new requirement to confirm cash and cash equivalents,
- Eliminates negative confirmations as appropriate audit evidence,
- Stresses auditor control over confirmation selection, delivery, and follow-up.
When confirmations are not feasible or go unanswered, auditors must perform alternative procedures to obtain reliable evidence — such as direct access to relevant transaction records.
What’s Next for Confirmations?
Technology has transformed the confirmation process over the past two decades, and further evolution is coming. The Auditing Standards Board (ASB) has proposed changes to align private company audit standards with the PCAOB’s guidance — with possible adoption in 2027. Meanwhile, some firms are exploring how artificial intelligence (AI) can automate confirmation workflows and flag high-risk responses.
While they may seem like a procedural checkbox, external confirmations are becoming smarter, faster, and more secure. Talk to your auditor to better understand how confirmations will be used in your next audit — and how emerging technology and new standards may shape the process.
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