circularization

1. An audit test that consists of written requests to *third parties to confirm the existence and accuracy of items in financial statements. A common example is the circularization by external auditors of a sample of an organization’s customers, to obtain documentary evidence of *accounts receivable balances. A positive circularization is one in which the third party is asked to confirm a communicated balance, whether correct or incorrect. A negative circularization is one in which a third party is requested to reply only if a stated balance is incorrect or disputed. Third party evidence is generally considered by auditors to be of high value, and circularization procedures are therefore considered to provide strong *audit evidence. See also *confirmation letter. 2. The distribution of a leaflet or similar document among a group of individuals or organization. An example is the mailing of the details of sales offers to an organization’s customers.