During the course of an audit, you may hear your auditors refer to something called a “confirmation letter.” This is a letter that your auditor will send out to third parties, such as banks or suppliers, asking them to confirm certain financial information. Confirmation letters are important because they provide an independent verification of your organization’s finances. Show If your accounts receivable shows that you owe money to a particular vendor, your auditor might send that vendor a confirmation letter asking them if that amount is accurate. Your auditor might also send letters to other parties asking them to verify cash, inventory, notes payable, legal matters, contracts, or any unusual transactions. Confirmation letters may be sent electronically or through the mail (often with a pre-addressed return envelope included). Postage charges for the confirmation letters will usually be billed back to your organization. The confirmation process involves several steps:
In general, audit evidence is most reliable when it is obtained from independent parties outside of the organization. That’s why audit confirmation letters are such a critical part of the audit process. If you have any questions or concerns regarding the audit confirmations, don’t hesitate to reach out to your audit firm. At the end of the financial year, there are so many accounts receivables and when auditors are checking each and every account, they send audit confirmation letter accounts receivables to parties with outstanding balances to make sure that the figures match with that of the party. Such a letter is framed on the letterhead of the company and is very useful in confirming the closing balance of the firm. Here is sample format of audit confirmation letter accounts receivable designed by professionals. As the accounts manager of your company, you must know how to frame this kind of a letter in a formal manner. Keep it short and informative. Format of Audit confirmation letter accounts receivable Bob Marlow Accounts Manager, XYZ Packers and Movers, 55 Raymond Street New York Date: 14th November, 2015 Richard Smith Managing Director ABC Corporation Pvt. Ltd. Harry Park, Herald Street, New York Dear Mr. Smith, I request you to please confirm the right response below after computing the right balance. If it matches with our records then please check the appropriate response and sign the reply along with mentioning the date and mail it directly to our auditors. If in case there is difference in the amount then please send us the account statement along with sufficient details reflecting the difference in the enclosed return envelope. Thank you for your cooperation. Yours truly, Bob Marlow Accounts Manager, XYZ Packers and Movers ……………………………………….. (Sign and Date) Confirmation – Information is accurate. Related Other Accounts TemplatesAccounts Payable Excel Template Top File Download:Auditors normally perform account receivables confirmation to confirm accounts receivables recorded in the client’s financial statements. This confirmation also seeks to confirm the accuracy and existence of the accounts balance that is outstanding at the reporting date. Normally, the account receivables report in the financial statements is considered a significant and sensitive area by auditors. And the most important assertions that need to confirm by auditors for account receivables are existence, valuation, recoverability, as well as completeness. To confirm the existence, auditors might have many procedures. For example, review the outstanding receivables to invoices, and review the subsequent collection. However, for the sensitive account, auditors also performed the confirmation from customers. Because, when auditors review the invoices and subsequent collection, all the information, and documents that auditors have been obtained from the client-side only. The better evidence to support those outstanding and their correctness is obtained from the third party, like customer confirmation. Auditors perform two types of confirmation—positive and negative proof. The most popular one is positive confirmation. Positive company confirmation is required customers to respond no matter whether the confirming information is correct or not. But the negative confirmation is required only if the confirming information is incorrect. How is Account Receivables Confirmation performed?During the audit, the auditor will assess which accounts of the company’s financial statements are significant and considered as high risks of material misstatements in the financial statements. In the income statement, revenues, cost of goods sold, and operating expenses are the account that auditors normally considers as significant account,s and then they will perform testing on those accounts. Related article How can auditors improve independence? In the balance sheet, for the normal company, cash in the bank, account receivable, fixed assets, and account payable are the accounts that are normally considered significant. Certain procedures are performed to get comfortable before making the conclusion on the audit option. One of the important procedures used by the auditor is confirmation. For account receivable confirmation, auditors normally use the audit tools to help them quantify the sample and select the sample items. Once the auditor confirms how many accounts need to be confirmed and which accounts are selected, the auditor will draft the account receivable confirmation based on the template used by the audit firm and the methods they use. Negative or positive. Sometimes, the auditor will just provide the list of customers they are selected and the template they are using to its client for completion. Once the template is completed, auditors review the correctness of the information and then get the confirmation signed off by the company’s authorized person. Send and receive the confirmation:Once the confirmation is ready to be sent, the auditor is the one who sends the confirmation to the client’s customers. The confirmation should not send by the client to its customer. This is to confirm that evidence that is collected from the confirmation is considered third-party information. The auditor is also the one who receives the confirmation from the client’s customers. If in case, the confirmations are sent and received by clients, the auditor will have to perform the confirmation of that customer again. The auditor might need to consider if additional samples are required. Related article What Is the Importance of Audit Evidence? |
What is account receivable confirmation letter?
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