An auditor sends 200 positive accounts receivable confirmations and gets back 187. Twelve are silent. One reply lists a balance $84,000 lower than the client's records. The exam tests what you do with the silent twelve and the one disagreement, not the 187 that agreed.
HIGH-FREQUENCY: AU-C 505 defines an external confirmation as audit evidence obtained as a direct written response to the auditor from a third party, in paper or electronic form. Three pillars support reliability: the request is designed and sent by the auditor, the response is received directly by the auditor, and the process is controlled by the auditor end to end.
KEY: External confirmations rank high on the reliability hierarchy because the source is independent of the entity. The moment the client touches the request or response, independence is compromised.
A positive confirmation asks the recipient to respond whether they agree or disagree. A negative confirmation asks the recipient to respond only if they disagree.
For accounts receivable, AU-C 505 establishes a presumption that the auditor will send positive confirmations. Negative confirmations are appropriate only when all four conditions are met:
Common mistakes
- Treating a confirmation routed through the client as valid. A response that arrives at the client's office and is forwarded by the client is a client representation, not confirmation evidence.
- Accepting silence on a positive confirmation as agreement. Silence on a positive triggers alternative procedures. The "silence equals yes" rule applies only to negatives, only when all four conditions held.
- Skipping investigation of "small" exceptions. Every exception is investigated until documented as a timing difference, reconciled credit memo, or misstatement. The threshold for investigation is any difference, not a dollar figure.
Bottom line
- AU-C 505 governs external confirmations: direct written responses from a third party, in paper or electronic form.
- Positive confirmations are the default for accounts receivable unless all four conditions for negative confirmations are documented.
- The auditor controls every step (selection, request, mailing, and direct receipt) to keep the evidence independent of the client.
- Nonresponses to positive confirmations require alternative procedures (subsequent receipts, shipping documents matched to customer orders, contracts), never inquiry alone.
Exam shortcut
When a question describes a confirmation that touched the client at any point (selection, mailing, or receipt), the answer is a breakdown in auditor control. Look for the choice that restores independence: re-mail through the auditor or treat the response as a client representation. When a question describes silence, identify the type first. Positive silence equals nonresponse equals alternative procedures.
The full lesson (about 2,016 words, 13 min read) adds 1 worked example, all 5 common mistakes, a self-check, free in the app.
Learning objectives
- III.D3
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