Confirmation of balances – what is it and how to do it?

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Confirmation of balances , i.e. the amounts to be paid, is used to verify the completeness of documents and transactions carried out by businesses in a given year. It takes the form of a detailed report showing differences between the facts and the accounting records. It is a basic form of stocktaking that every business is legally required to carry out once a year. It is used to precisely identify the current balance and the value of company's assets, and to increase the chance of debt collection and to reduce financial burden on the creditor. Although it does not guarantee that the debt will be repaid, it is at least acknowledged by the debtor. Confirming balances promotes security and financial records compliant with applicable laws.

Confirmation of balances is regulated in Poland by the Accounting Act [1]. It describes in detail what stocktaking involves [1a]. The Act says that stocktaking by confirmation of balances applies to:

Confirmation of balances is therefore more than the commonly used confirmation of receivable balances. 

Under the Act, the confirmation of balances method does not apply to:

The Act also sets deadlines for confirming balances. Stocktaking should be carried out once a year. It is essential that stocktaking starts no earlier than three months before the end of the financial year and is completed by the 15th day of the following financial year, i.e. between 1 October and 15 January of the following year. 

Confirmation of balances is the responsibility of every enterprise that keeps books of account. It is initiated always by the creditor (the entity that has receivables). The role of the debtor is to confirm the balance and report irregularities. The person responsible for stocktaking in the company, including confirmation of balances, is the entity's manager. It is he/she, or the person authorised to make declarations of intent on behalf of the company, who is required to sign the confirmation of balances. In practice, receivable balances are often confirmed by accounting  departments. The Accounting Act does not prohibit a debtor from requesting confirmation of balances but this is not a common practice.

Confirmation of balances is an obligation arising directly from the Accounting Act. It must be sent to all business partners. It is important to get the proof of posting and receipt of documents sent, regardless of whether the documents are sent by post or by email. The creditor may send the confirmation of balances in duplicate: e.g. slip A and slip B with slip A being for the other party. Confirmation of balances – slip B is completed by the business partner who states the compliance/discrepancy of balances (compliant/non-compliant balance) and its liabilities to the entity. The document must be dated, stamped and signed by an authorised person in compliance with the applicable rules of representation.

Unfortunately, confirmations of balances are often signed by accountants, which means that they have no legal force in the event of a litigation against the creditor, e.g. through the acknowledgement of a claim interrupting the limitation period.

Any discrepancies are reported on slip B or in the attached letter explaining the situation. It is also a common practice to attach a printout of a statement from the accounting system. 

Thus, the confirmation of balances is one of the most important pieces of information about the correctness of postings or inaccuracies.

There are no statutory guidelines as to what a confirmation of balances should look like. There are, however, a few items that can be considered mandatory and most frequent:

Confirmation of funds in bank accounts or of the stock of securities is sent by the bank or, as the case may be, the brokerage firm which maintains the account. The receivable balance is confirmed using a special form – the so-called confirmation of balances, slip A and B. However, the legislator does not specify a standard document. Items that usually appear on the confirmation of balances include: 

The balance confirmation received must be verified against the data in the books and, if there are any discrepancies, they must be described and explained.

Confirmation of balances must always be acknowledged. The Act does not provide for “tacit” acknowledgment. The rule whereby the creditor includes information on the balance confirmation that if the confirmation is not acknowledged within a specified period of time, the creditor will consider it compliant, cannot be applied here. If the debtor does not acknowledge the balances, they are always considered as unconfirmed balances. Any discrepancies should also be reported to the creditor. It is a good practice to explain what they result from. For this purpose, we can, for example, print a statement from the accounting system. 

Balances can be acknowledged in two ways: by traditional post and by email. Acknowledgment of balances by email is already a common practice. Such a message is even more credible if it is signed using a qualified electronic signature or comes from an email address that does not raise any doubts as to the identity of the confirming entity. In both cases, you must ensure that the message requesting acknowledgment of balances reaches authorised persons.

It may happen that the confirmation of balances is not compliant with your documentation. Discrepancies between balances can occur for various reasons. They are most often due to incorrect posting, missing invoices or different periods in which invoices are posted in the books of account. In case of discrepancies, the debtor produces a document explaining the disproportions. It is used as the basis for verifying invoices and payments. 

Nil balances are generally not confirmed. However, when you have carried out many transactions with one business partner and therefore generated a high turnover with it – it is worth confirming the nil balance. This provides you with proof that no assets have been overlooked during stocktaking.

Confirmation of balances is an important annual element in preparing annual financial statements. A well-planned and completed control procedure for confirming balances has a direct impact on the correctness and reliability of the books of account. The statutory obligation to confirm balances is also an additional tool that supports the detection of irregularities and fraud. It is through inconsistent confirmations of balances that parties most often become aware of irregularities in their accounts. 

When sending a confirmation of balances, you should also ensure that the addressee acknowledges the receipt of your message.

If you have any questions about confirmations of balances, you are welcome to contact our experts.