The Confirmation Process
Here’s a summary of the accounts receivable confirmation process:
1. Obtain an aged trial balance of accounts and reconcile it to the general ledger.
2. Decide on a selection method (random-number, systematic or haphazard), calculate the desired sample size based on risk
and materiality at the assertion level.
3. Select accounts for confirmation preparation and decide on positive or negative requests.
4. Prepare confirmations (or supervise client preparation).
5. When the client prepares confirmations, make sure all those requested are completed and that names, addresses and
amounts agree to client records.
6. Independently verify a sample of customer addresses (phone book, Google, remittance advices, etc.).
7. Make copies of confirmations to use as second requests.
8. Stuff envelopes, or supervise client stuffing.
9. Insert CPA firm return address envelopes into confirmation request envelopes.
10. Obtain postage and deliver to an off site mail drop.
11. Clear exceptions from replies by inquiries of client personnel and inspection of supporting records.
12. Send second requests on non-replies by repeating steps 7 through 11.
13. Perform alternative procedures on non-replies to second requests by inspecting supporting documents (records for sales,
shipments and subsequent collections).
14. Consider proposing adjustments, recording errors on an Error Analysis Worksheet and performing qualitative error analysis.
15. Project sample error rate to the sampling population.
16. Summarize confirmation statistics to support the existence assertion.
Because of the substantial time required to prepare, control and send confirmations, an auditor’s objective should be to select
just enough confirmations to satisfy the audit objectives. Here are a few of the ways this can be accomplished:
• Pay attention to the risk assessment process. Whenever risk of material misstatement at the assertion level is less
than high, we have opportunities to reduce the number of confirmations.
• Base the lower limit for individually significant items at the assertion level on tolerable misstatement determined at
the lowest risk level possible (as risk goes down tolerable misstatement and the lower limit for individually significant items
• Use the higher level of tolerable misstatement in the model approach to sampling applications.
• When risk is less than high, consider judgmentally raising the lower limit for individually significant items.
• When risk is moderate to low, consider using negative confirmations for smaller account balances.
Many CPA firms are learning that the time required for the confirmation process can be reduced significantly by sending
electronic confirmations. Electronic confirmation capability for accounts receivable is available through Capital Confirmation,
Inc. (www.confirmation.com). These electronic confirmations are secure, save substantial preparation time, reduce turn around
time and are economically priced.
More information on sending just enough confirmations is available from my live and on-demand self-study courses in a Basic
Staff Training Series which can be accessed by clicking on the applicable box on the left side of my home page,