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An Audit Confirmation Letter is a critical component of the external audit process that you'll encounter when independent verification of your company's financial information is required. Under Hong Kong's regulatory framework, these letters must comply with the Hong Kong Standards on Auditing (HKSAs) and meet the professional requirements established by the Hong Kong Institute of Certified Public Accountants (HKICPA). The document serves as a direct communication tool between your auditor and third parties who can confirm specific financial information about your business.

When do you need this document?

You'll need an Audit Confirmation Letter during annual statutory audits required under the Hong Kong Companies Ordinance, particularly when your auditor needs to verify financial information held by external parties. This typically occurs when confirming bank balances with financial institutions, verifying outstanding loans or credit facilities, confirming investment holdings with fund managers or brokers, or validating account balances with major customers or suppliers. Special purpose audits, due diligence exercises, and regulatory compliance audits may also require confirmation letters. If your company has significant transactions with related parties or complex financial arrangements, your auditor will likely use these letters to obtain independent verification of the terms and balances involved.

Key legal considerations

The format and content of your confirmation letter must adhere to HKSA 505 External Confirmations, which sets specific requirements for the design and execution of confirmation procedures. You must ensure the letter clearly identifies the client company, specifies the information being confirmed, and requests a direct response to the auditor rather than to your company. Confidentiality provisions are crucial, particularly in relation to the Personal Data (Privacy) Ordinance, which governs how personal and financial information can be shared. The letter should include appropriate disclaimers regarding the use of confirmed information and specify that responses are intended solely for audit purposes. Your auditor must maintain professional independence throughout the confirmation process, and you cannot influence or interfere with responses from third parties.

Legal requirements in Hong Kong

Under the Hong Kong Companies Ordinance and Professional Accountants Ordinance, auditors must obtain sufficient appropriate audit evidence to support their opinion on your financial statements. HKSA 505 mandates that confirmation letters include specific elements: proper identification of the confirming party, clear description of the information to be confirmed, and a request for direct response to the auditor. The HKICPA requires that auditors maintain control over the confirmation process, including selecting appropriate confirming parties and ensuring the reliability of responses. Your company directors and secretary may need to authorize the release of information to third parties, and proper documentation of this authorization is essential for regulatory compliance. The audit firm must also consider the Personal Data (Privacy) Ordinance when requesting confirmation of information that may include personal data of employees, directors, or customers.