If your organization’s financial statements are audited, chances are your auditor will send out external confirmations. These information requests may be sent directly to your customers, vendors, banks, attorneys, and benefit plan administrators.

For your internal finance and accounting team, the confirmation process may feel intrusive or confusing, especially when third parties don’t respond immediately. But confirmations are a critical source of audit evidence. Understanding how they work can help your team support a smoother, more efficient audit.

Purpose

External confirmations allow auditors to independently verify key balances and other information — such as cash, receivables, payables, and legal contingencies — without relying solely on internal records. Under U.S. Generally Accepted Auditing Standards, an external confirmation is defined as a direct response from a third party, either by mail or electronically.

For example, a third party might confirm an account balance, the terms of a loan, or the existence of pending litigation. The confirmation response helps validate what’s on your books and reduce the risk of material misstatements.

Three Formats

The types of confirmations your auditor uses will vary depending on your situation and the nature of your organization’s operations. Confirmations may come in the following three general formats:

1. Positive. Third parties must respond whether they agree or disagree with the information provided. This type is commonly used for high-risk areas, including receivables and legal matters.
2. Negative. Third parties respond only if they disagree with the information on the confirmation. It’s less intrusive but also less persuasive as audit evidence.
3. Blank. The auditor requests the third party fill in specific details, such as the balance owed, rather than verifying a prefilled number. This method provides strong evidence but requires more effort from the third party.

 
Confirmed balances may need to be rolled forward (or backward) to reconcile with amounts reported on the balance sheet date.

From Snail Mail To Secure Portals

Traditionally, auditors mailed confirmations and waited for responses. Today, most confirmations are sent electronically, often through secure third-party platforms. This speeds up the process, reduces the risk of tampering, and improves audit efficiency. In fact, many banks and financial institutions now require confirmations to be submitted electronically and won’t respond to paper forms.

The Public Company Accounting Oversight Board (PCAOB) approved updated guidance in 2023 that modernizes and strengthens the auditor’s confirmation process. The new standard — Auditing Standard (AS) No. 2310, The Auditor’s Use of Confirmation — is effective for public company audits for fiscal years ending on or after June 15, 2025. Specifically, the updated guidance:

• Explicitly includes electronic confirmations and the use of third-party intermediaries
• Maintains the existing requirement for auditors to confirm accounts receivable
• Adds a new requirement for auditors to confirm cash and cash equivalents held by third parties (though most auditors already routinely do this)
• Eliminates the negative confirmation format as appropriate audit evidence
• Emphasizes the auditor’s control over selecting items to be confirmed, sending and receiving confirmations, and addressing incomplete responses and nonresponses

 
When confirmation procedures aren’t feasible, the auditor must perform alternative procedures to obtain relevant and reliable evidence for the information in question. For instance, auditors can get direct, read-only access to transactions or balances.

Looking To The Future

Technology has radically changed the confirmation process over the last 20 years. And more changes may be on the horizon. While PCAOB standards apply to public companies, the Auditing Standard Board (ASB) in February 2025 proposed changes to its confirmation standard based on the public company guidance, with potential adoption in 2027. In addition, many auditors are exploring ways artificial intelligence (AI) might help them automate confirmation tracking and identify confirmation risk patterns.

External confirmations may seem like just an audit formality, but they’re evolving into faster, smarter, and more secure tools for validating your financials. Contact us to learn how confirmations will be used in your next audit — and how updated auditing standards and AI could affect our procedures.