What is a confirmation letter? Confirmation letter review

According to the requirements of relevant standards, confirmation letters must be sent by the auditor in person and cannot be sent by the auditee. The auditee can help fill in the contents of the confirmation letter and provide the address of the person being confirmed, but the auditor must check and verify the above information. The confirmation letter is an important part of the auditor's audit working papers.

The audit procedure of sending confirmation letters to obtain audit evidence is called confirmation. According to the audit standards, all bank accounts, including those closed during the audit period, should be confirmed, and important transactions should be confirmed.

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Depending on the witness being questioned, confirmation letters can be divided into:

• Bank confirmation letter : a confirmation letter sent to the auditee's deposit bank and borrowing bank to check the balance, existence and ownership of the auditee's bank deposits on a specific date (usually the balance sheet date, the same below), as well as the balance, completeness and valuation of the borrowings. A complete bank confirmation letter generally includes: deposits, borrowings, account closures, entrusted deposits, entrusted loans, guarantees, acceptance bills, discounted bills, collection bills, letters of credit, foreign exchange contracts, depositary receipts and other major matters;

• Corporate confirmation letter : A confirmation letter sent to the creditors and debtors of the audited entity to check the existence and rights or obligations of the audited entity's claims or debts on a specific date. Corporate confirmation letters usually include the balance of accounts receivable between the two parties as of a specific date;

• Attorney confirmation letter : a confirmation letter sent to the lawyers and their law firms that provide legal services to the auditee to check whether the auditee has any pending litigation as of a specific date and the possible impact thereof, as well as the settlement of attorney fees;

• Other confirmation letters : confirmation letters issued to other institutions such as insurance companies, stock exchanges or government departments to check information such as the auditee's insurance contract terms, tradable securities held or registered capital.

According to the different reply requirements, corporate confirmation letters can be divided into:

• Positive confirmation letter : Regardless of the record of the confirmation letter, the witness is required to reply;

• Negative confirmation letter : When the record of the confirmation letter is consistent with the record of the witness being questioned, no reply will be given. Only when the record of the confirmation letter is inconsistent with the record of the witness being questioned, a reply will be given. Negative confirmation letter should be used only when the following conditions are met at the same time :

• The risk of material misstatement is assessed to be low;

• Involving a large number of accounts with small balances;

• There is no expectation of substantial misstatement;

• There is no reason to believe that the witnesses did not take the confirmation seriously.