Why Auditors Contact Third Parties During Your Financial Statement Audit
If your company undergoes a financial statement audit, your auditors will likely reach out to third parties — such as your customers, banks, vendors, attorneys, or benefit plan administrators. These are known as external confirmations and they’re a standard part of the audit process.
Why External Confirmations Matter
External confirmations help auditors verify critical financial information independently, rather than relying solely on your internal records. This can include account balances, outstanding loans, legal issues, and other important financial data. By confirming this information directly with third parties, auditors reduce the risk of errors or material misstatements in your financial statements.
Under U.S. Generally Accepted Auditing Standards (GAAS), an external confirmation is any direct response received from a third party—by mail or electronically. These confirmations are especially important in high-risk areas like accounts receivable, cash balances, and legal contingencies.
Types of Audit Confirmations
There are three main types of audit confirmations:
- Positive confirmations – Require the third party to respond whether they agree or disagree. Common for receivables and legal matters.
- Negative confirmations – Require a response only if the third party disagrees. Easier to send, but less reliable.
- Blank confirmations – Ask the third party to fill in details like account balances, offering strong audit evidence but requiring more effort.
How Technology is Changing Audit Confirmations
While confirmations were once handled by paper mail, most are now sent electronically via secure third-party platforms. This shift improves speed, accuracy, and security. In fact, many banks now only respond to electronic requests.
New auditing rules from the PCAOB, effective for fiscal years ending after June 15, 2025, now require electronic confirmations for public companies, eliminate the use of negative confirmations, and emphasize auditor control over the process.
Our team can guide you through the audit confirmation process and help streamline communication with third parties. Contact us today to get started.