Statement in Support of Adoption of New AS 2310, The Auditor’s Use of Confirmation and Conforming Amendments to Other PCAOB Standards
Remarks as prepared for delivery
Good afternoon, everyone.
I support staff’s recommendation to issue the new standard, AS 2310, The Auditor’s Use of Confirmation.
Evidence obtained by the auditor from a knowledgeable third-party source outside the company generally is more reliable than evidence obtained only from internal company sources, and confirmations have long been used on nearly every audit.
A well-designed and well-executed confirmation process can be an effective and efficient way to validate various financial statement assertions—such as existence, completeness, or obligations. Confirmations can also be useful in validating terms of complex or significant unusual transactions, identifying related parties and addressing the risk of misstatement from fraud.
The new standard strengthens and modernizes requirements for the confirmation process, which will improve the relevance and reliability of audit evidence obtained through confirmations and thereby improve audit quality for the protection of investors.
Of note, the new standard reflects changes in technology, communications and business practices since the existing standard was initially issued over 30 years ago, including the now widespread use of electronic communications and the involvement of third-party intermediaries in the confirmation process.
The new standard is also principles-based to stay relevant as approaches for confirming or otherwise directly accessing information maintained by knowledgeable external sources evolve.
One noteworthy enhancement compared to the 2022 proposal is that the new standard now better recognizes that in certain situations, the confirmation of cash and accounts receivable may not always provide sufficiently relevant and reliable audit evidence or, for accounts receivable, may not always be feasible.
In these circumstances, the new standard provides the auditor the ability to otherwise obtain audit evidence by directly accessing information maintained by a knowledgeable external source or, in certain circumstances, to perform alternative testing procedures.
Thank you to everyone that provided comments on the 2022 proposal. Your input has been invaluable in finalizing this project.
In that regard, we received many comment letters expressing concern that certain language in the 2022 Proposal seemed to call into question the integrity and competency of internal auditors. That was certainly not intended, and under our standards internal auditors can and do play an important role in providing direct assistance across many areas of the audit.
The confirmations project has been on our standard-setting agenda for many years, and I commend the staff currently involved for bringing the project to completion.
In particular, I want to recognize and thank Barb Vanich, Dima Andriyenko, Lisa Busedu, David Hardison, Heather Jossem, and Dani Verbeck in the Office of the Chief Auditor; Martin Schmalz, Mike Gurbutt, Tian Liang, Tasneem Raihan, and John Cook in the Office of Economic and Risk Analysis; and James Cappoli, Connor Raso, Annie Yan, and Keisha Patrick in the Office of the General Counsel.
I also thank, for their collaboration and idea sharing, Chair Williams and my other fellow Board Members and their staffs; Brent Simer, Katie Driscoll and Lucia Carromba from my team; and the SEC’s Office of the Chief Accountant.
On an unrelated matter, before I turn the floor back to Chair Williams, regarding the SEC’s announcement yesterday, I congratulate my colleague, George Botic, on being appointed to the PCAOB Board when my second term ends on October 24th. I have worked closely with George over my tenure, and I know he will bring tremendous expertise and insight to the Board.