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New PCAOB Standard Updates Confirmation Requirements

S.J. Steinhardt
Published Date:
Sep 29, 2023

iStock-602302390 Spreadsheet Audit Books

The Public Company Accounting Oversight Board (PCAOB) approved a new standard aimed at preventing fraud.

The new standard, AS 2310, The Auditor’s Use of Confirmation, is “designed to improve the quality of audits when confirmation is used by the auditor and to reflect changes in the means of communication and in business practice since the issuance of the original standard,” the Bboard stated.

The standard replaces the one adopted in 2003. Currently, audit firms are required to request that a third party confirm the accuracy of certain information, but may assume that a stated amount is correct unless a third party objects. Under the new rule, audit firms will have to receive confirmation that the stated amounts of cash and cash equivalents held by third parties, in addition to accounts receivable, are accurate. 

The new standard also bars audit firms from using a company’s internal auditors to help select items for confirmation, to send out the request or to handle the responses, according to The Wall Street Journal.

Among its key provisions, the new standard:

● Includes a new requirement regarding confirming cash and cash equivalents held by third parties or otherwise obtaining relevant and reliable audit evidence by directly accessing information maintained by a knowledgeable external source;
● Carries forward the existing requirement regarding confirming accounts receivable, while addressing situations where it is not feasible for the auditor to perform confirmation procedures or otherwise obtain relevant and reliable audit evidence for accounts receivable by directly accessing information maintained by a knowledgeable external source;
● States that the use of negative confirmation requests alone does not provide sufficient appropriate audit evidence;
● Emphasizes the auditor’s responsibility to maintain control over the confirmation process and provides that the auditor is responsible for selecting the items to be confirmed, sending confirmation requests, and receiving confirmation responses; and
● Identifies situations in which alternative procedures should be performed by the auditor.

“The new standard will help auditors detect fraud and better protect investors.” PCAOB Chair Erica Y. Williams said in a statement. “By replacing a confirmation standard that had not changed significantly since faxes were a regular form of communication, the Board has taken an important step in modernizing our standards to effectively protect investors in today’s world.”

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