PCAOB Adopts New Standard for the Auditor’s Use of Confirmation

On September 28, 2023, the PCAOB announced the adoption of a new standard relating to the requirements for the auditor’s use of confirmation. The new standard is designed to reflect changes in technology, communications, and business practices by: (1) requiring the confirmation of cash and cash equivalents held by third parties or otherwise directly obtaining relevant and reliable audit evidence from a knowledgeable external source; (2) addressing situations where required confirmation procedures for accounts receivable are not feasible; (3) establishing that the use of negative confirmation requests alone does not provide sufficient appropriate audit evidence; (4) establishing that the auditor is responsible for maintaining control over the confirmation process, including selecting the items to be confirmed, sending confirmation requests, and receiving confirmation responses; and (5) identifying situations in which alternative procedures should be performed by the auditor, such as in scenarios involving nonresponses and incomplete responses. Subject to approval by the SEC, this new standard is applicable to all audits conducted under PCAOB standards and will take effect for audits of financial statements for fiscal years ending on or after June 15, 2025.

 

The PCAOB’s press release is available here, and the new standard is available here. Statements in support issued by each Board member are available here: Williams, DesParte, Ho, Stein, and Thompson.