When an auditor is examining the accounting records of a client company, a primary technique for verifying the existence of accounts receivable is to confirm them with the company's customers. The auditor does so with an accounts receivable confirmation. This is a letter signed by a company officer (but mailed by the auditor) to customers selected by the auditors from the company's accounts receivable aging report. The letter requests that customers contact the auditors directly with the total amount of accounts receivable from the company that was on their books as of the date specified in the confirmation letter. The auditor typically selects customers for confirmation that have large outstanding receivable balances, with secondary consideration given to overdue receivables, followed by a random selection of customers having smaller receivable balances.
Since the information obtained through confirmations comes from a third party, it is considered to be of higher quality than any information that an auditor could have obtained from the client company's internal records.
A sample accounts receivable confirmation appears in the following exhibit. Note that the confirmation clearly states that it is not a dunning letter (which is used for collections).