What it is
A debt confirmation asks the lender to tell the auditor directly what the entity owes and on what terms. The auditor selects the lenders, designs the request, sends it and receives the response, so the evidence is independent of the entity. The client signs only to authorize the release of information.
The letter lists what to confirm: principal, accrued interest, rate, payment terms and maturity, past-due amounts, collateral and guarantees, covenants and compliance, defaults and notices, unused commitments and derivatives, and prepayment terms. The lender completes a column beside the client’s figures and returns the signed letter to the auditor. A firm file note describes follow-up and alternative procedures.
When to use it
- Auditing notes payable, lines of credit, mortgages and other borrowings at year end.
- When covenant compliance or classification of debt as current or noncurrent is a risk.
- To follow up an unusual or unrecorded financing arrangement.
What’s inside
- Client authorization and instructions to reply directly to the auditor
- Thirteen confirmation items with client and lender columns
- Signature blocks for the client and the lender
- Firm file note on logging, nonresponse and alternative procedures
Standard cited
This template follows AU-C 505. It is written in our own words, except for phrases the standard requires the document to contain, with [bracketed placeholders] for client details, amounts in USD and dates as MM/DD/YYYY. Check it against the current standard and your firm’s methodology before use. See AU-C 505 explained.
Questions
Who should send the confirmation request?
The auditor. AU-C 505 expects the auditor to maintain control over the confirmation process, including selecting the items, designing the request, sending it and receiving the response, so the client should not mail the request or receive the reply.
What if the lender does not respond?
Follow up, then perform alternative procedures: inspect loan agreements and amendments, agree payments to bank statements, recompute interest and review lender correspondence and covenant calculations. Log the nonresponse in the confirmation control log.
Why ask about covenants and defaults?
Because a covenant violation can make debt currently payable and affect the going concern evaluation. The lender’s response about compliance, waivers and notices is evidence the entity’s own records may not provide.
Does SAS 150 change this?
SAS 150 amends AU-C 505 for audits of financial statements for periods ending on or after December 15, 2028. Until then AU-C 505 as currently codified applies. Align the letter and procedures to SAS 150 if your firm adopts it early.
Related templates
- Bank Confirmation Letter (AU-C 505)
- Accounts Receivable Confirmation Letter (Positive)
- Confirmation Control Log (AU-C 505)
- Debt and Interest Rollforward Schedule
Last updated 11/05/2026. All free templates.