Confirmation is an evidence gathering activity performed by the auditor, usually in the substantive testing stage of the audit. (Note that the word "confirmation" is also used to describe the physical evidence that relates to the performance of the confirmation activity; thus "20 confirmations were received from the client's debtors".)
Confirmation refers to the process of requesting and receiving information in writing and from a third party, attesting to the validity (i.e. the existence or occurrence) of an item, such as an asset, liability, transaction or economic event. (A confirmation may, in some circumstances, also provide evidence relating to the completeness or accuracy of an account balance or underlying class of transaction.)
A written response received directly by the auditor from a third party arising from a written request by the auditor directly to the third party generally provides reliable evidence as to the existence of an asset or liability (or the occurrence of a transaction or economic event). However, auditors consider the appropriateness of the authority of the person signing the confirmation, and where possible, the confirmee's integrity and competence.
Auditors inquire as to whether any member of the client's management knows the names of the individuals/entities to whom confirmation requests may have been sent, as it is possible for such a person to intercept the confirmation (see the summary by Capital Confirmations Inc of the 1999 fraud by the management of CF Foods).
See also confirmation of receivables.
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