## External Confirmation — Definition and Types

### What is External Confirmation?

Audit evidence obtained as a direct written response to the auditor from a third party (confirming party), in paper form or by electronic/other medium.

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### Key Terms

Term	Meaning
Positive Confirmation Request	Confirming party must respond in all cases — agreeing/disagreeing or providing information
Negative Confirmation Request	Confirming party responds only if they disagree with the information
Non-Response	Failure to respond (or fully respond) to a positive request, or request returned undelivered
Exception	Response indicating a difference between entity's records and confirming party's information

> Exception must be assessed against the entire population after analysing the reason for the difference.

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### Uses of External Confirmation

1. Confirming terms of agreements and contracts

2. Confirming transactions between entity and other parties

3. Confirming property title deeds held by lawyers/financers as security

4. Confirming amounts due to lenders

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### Positive vs. Negative — Key Distinction

Positive confirmations provide more reliable audit evidence because the confirming party must always respond.

Risk: confirming party may reply without verifying correctness
Mitigation: use "blank" confirmations (don't state the amount; ask the party to fill it in)
Trade-off: blank confirmations may yield lower response rates

Negative confirmations provide less persuasive audit evidence.

Worked example

### Example 1

Example — Positive Confirmation (Blank type): Auditor sends a letter to a debtor stating: "Please confirm the balance outstanding as on 31st March in your records." The debtor fills in the amount. This is stronger than pre-printing the balance because it forces the debtor to verify independently.

### Example 2

Example — Negative Confirmation: Auditor sends a letter to 500 small debtors: "If you disagree with the balance of ₹1,200 shown in our records, please respond within 14 days." Only those who disagree respond. Useful only when ROMM is low, population is large and homogeneous, and a very low exception rate is expected.

### Example 3

Example — Exception: Confirmation sent to ABC Ltd showing ₹5,00,000 receivable. ABC Ltd responds that their records show ₹4,50,000. This ₹50,000 difference is an exception — auditor must investigate and assess implications for the entire population.

⚠️ Common exam mistakes

Confusing positive and negative confirmation requests: positive = must always respond; negative = respond only if you disagree.
Using negative confirmations as the sole substantive procedure — SA 505 prohibits this unless all four conditions (low ROMM, large homogeneous population, very low exception rate, recipients won't disregard requests) are simultaneously met.
Treating non-response to a positive confirmation as confirmation of the balance — non-response is NOT a confirmation; alternative procedures must be performed.
Overlooking the 'exception assessment' requirement: when an exception arises, it must be evaluated against the entire population, not just the one balance.

Bare-Act text Definitions · SA 505 — External Confirmations · click to expand

External confirmation is the audit evidence obtained as a direct written response to the auditor from a third party (the confirming party), in paper form, or by electronic or other medium.

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Definition, Types, and Uses of External Confirmation

Worked example

⚠️ Common exam mistakes