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New PCAOB standard addresses confirmation in the audit

The PCAOB adopted a new standard relating to the auditor’s requirements for the use of confirmation.

Effective for financial statement audits for fiscal years ending on or after June 15, 2025, the standard will replace a 1991 AICPA standard adopted by the PCAOB on an interim basis shortly after the board’s formation in 2003. The PCAOB first formally considered updating the standard in 2009.

“By replacing a confirmation standard that had not changed significantly since faxes were a regular form of communication, the board has taken an important step in modernizing our standards to effectively protect investors in today’s world,” PCAOB Chair Erica Y. Williams said in a news release. “The board thanks the many commenters whose thoughtful input helped to shape this new standard on the auditor’s use of confirmation, and we look forward to monitoring the new standard’s implementation and impact.”

By incorporating technology advances into the process that auditors use to verify information via a third party about one or more financial statement assertions, the strengthened standard “will help auditors detect fraud and better protect investors,” Williams said.

The PCAOB said the new confirmation standard “establishes principles-based requirements designed to stay relevant as technology evolves by applying to all methods of confirmation, including electronic and paper-based communications.” Among its key provisions, according to the PCAOB, the new standard:

  • Includes a new requirement regarding confirming cash and cash equivalents held by third parties or otherwise obtaining relevant and reliable audit evidence by directly accessing information maintained by a knowledgeable external source;
  • Carries forward the existing requirement regarding confirming accounts receivable, while addressing situations where it is not feasible for the auditor to perform confirmation procedures or otherwise obtain relevant and reliable audit evidence for accounts receivable by directly accessing information maintained by a knowledgeable external source;
  • States that the use of negative confirmation requests alone does not provide sufficient appropriate audit evidence; 
  • Emphasizes the auditor’s responsibility to maintain control over the confirmation process and provides that the auditor is responsible for selecting the items to be confirmed, sending confirmation requests, and receiving confirmation responses; and
  • Identifies situations in which alternative procedures should be performed by the auditor.

Audit committee perspective

Audit committees at public companies that must meet PCAOB standards sometimes play a role in the confirmation process, but that’s only the tip of the iceberg.

In light of the significant role audit committees play, the PCAOB recently connected with more than 200 audit committee chairs to discuss their company audits and more, sharing insights in a staff spotlight publication entitled 2022 Conversations With Audit Committee Chairs.

PCAOB staff analyzed the conversations for recurring themes, leading to high-level takeaways on critical audit matters as well as on staffing, communications, and more.

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