Statement in Support of the Proposed New Standard for the Auditor’s Use of Confirmation

Remarks as prepared for delivery

Thank you, Chair Williams.

As mentioned, today we are issuing a proposal that would update the legacy standard concerning the auditor’s use of confirmation procedures. Much of the audit evidence made available to the auditor, during the course of an audit, is provided by the issuer’s management. The distinguishing characteristic of confirmation procedures is that they involve the auditor gathering audit evidence directly from third parties outside of the audit client; thus, reducing the risk of manipulation of audit evidence and increasing the reliability of that audit evidence.

Confirmations, in particular of cash and accounts receivable, are widely accepted and executed audit procedures by the profession. Fictitious bank accounts and receivables have been a prominent feature of many frauds which spurred the need for standards as early as the 1930’s. Given the increased risk of fraud in this current economic environment, I am particularly interested to see commenter views on whether the proposal strikes the right balance with respect to the auditor’s consideration of confirmation procedures in response to significant risks arising from other kinds of transactions or arrangements with third parties.

This proposal also requires communication to the audit committee in instances where the auditor has determined that the presumption to confirm accounts receivable has been overcome. Having audit committees aware of when their auditor determines to overcome that presumption strengthens their ability to perform their oversight role of the audit committee over auditor judgments.

The confirmation process has evolved significantly with the use of electronic means of confirmation, and diligence is essential to ensure reliability of electronic confirmation responses and to combat undue reliance on technology. This proposal highlights that the quality of the audit evidence obtained through confirmation procedures, regardless of means provided, is integral to the audit process.

I want to thank the staff for their work on this rulemaking. In particular, I would like to thank Barb Vanich, Dima Andriyenko, Lisa Busedu, David Hardison, and Dani Verbeck in the Office of the Chief Auditor; Mike Gurbutt, Tian Liang, Tasneem Raihan, and John Cook in the Office of Economic and Risk Analysis; Annie Yan, Keisha Patrick, and Connor Raso in the Office of the General Counsel; the input provided by the Division of Registration and Inspections and the Division of Enforcement based on inspections and investigation experience; and my Fellow Board Members and the Board Staff.

Thank you.