The Public Company Accounting Oversight Board (PCAOB) adopted a new standard to strengthen and modernize the requirements for the auditor’s use of confirmation – the process that involves verifying information about one or more financial statement assertions with a third party. The new standard reflects changes in technology, communications, and business practices since the interim standard was first adopted by the PCAOB in 2003 after being issued by the AICPA in 1991. The updated standard will better protect investors by strengthening procedures that enhance an auditor’s ability to identify fraud in certain circumstances and improving overall audit quality.

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 apply to all audits conducted under PCAOB standards. The new standard will take effect for audits of financial statements for fiscal years ending on or after June 15, 2025. Currently, the International Standards on Auditing and Canadian Auditing Standards remain unchanged.