Why Confirmation
Letters Matter

A confirmation letter asks a customer, vendor, bank, lender, or related party to verify a balance or transaction recorded in the business’s books.

Confirmations are commonly used for accounts receivable, accounts payable, cash, loans, related-party accounts, and intercompany balances. They may identify an unrecorded invoice, a payment posted in the wrong period, a duplicate entry, an unauthorized transaction, or different understandings of a debt’s terms.

Why Is Confirmation Valuable?

• Compares internal records with information held by a third party.
• Reveals missing, duplicate, or cutoff errors.
• Helps resolve customer and vendor disputes early.
• Supports year-end financial statements and tax preparation.
• Provides evidence in audits, lending reviews, and due diligence.
• Documents related-party and loan balances.

Effective confirmation is more than an error check—it is a recurring control that improves record quality.

What Should Be Prioritized?

Not every account requires the same level of attention. Prioritize balances that are large, old, unusual, related-party, or disputed. At year-end, consider bank and loan accounts, significant customers and vendors, and due-to/due-from owner accounts.

Is It Legally Required?

Federal tax law does not impose a blanket rule requiring every business to send annual customer and vendor confirmations. Internal Revenue Code §6001 and Treasury Regulation §1.6001-1 do, however, require sufficient records to substantiate tax-return items and make those records available for inspection. Confirmations can support that record system.

External confirmations play a more formal role in financial statement audits. PCAOB AS 2310 explains how evidence obtained from a knowledgeable external source can provide relevant and reliable audit evidence. The standard does not create an annual confirmation requirement for every small business; it demonstrates why properly controlled external evidence is valuable.

This content is for general informational purposes and is not tax, legal, or independent audit advice. Procedures should reflect the business’s size, risks, contracts, and audit requirements.