What is the difference between positive confirmation and negative confirmation?
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hello amey, whether confirmation request is positive or negative is decided by auditor while designing confirmation request in SA 505, so it is decided before sending confirmation request not when we receive response of confirmation. Do you understand how auditors verify account balances and transactions? This knowledge can minimize disruptions when the audit team visits your facilities and maximize the effectiveness of your audit. Here’s a list of five common sources of “substantive evidence” that auditors gather to help them form an opinion regarding your financial statements. 1. Confirmation letters. Auditors send letters to third parties, such as customers or vendors, asking them to verify amounts recorded in the company’s books. There are two types of confirmations: A positive confirmation requests that the recipient complete a form confirming account balances (for example, how much a customer owes the company). A negative confirmation requests that the recipient respond only if the balance is inaccurate. 2. Original source documents. Auditors can verify an account balance or record by vouching (or comparing) it to third-party documentation. For example, an auditor might verify the existence of a vehicle on your fixed asset list by reviewing the invoice from the seller. Vouching enables an auditor to evaluate the accuracy of the amount claimed by the company and whether the company recorded the transaction correctly in its accounting system. 3. Physical observations. Seeing is believing. So, auditors sometimes verify the existence of assets through physical observations and inspections. For example, inventory audit procedures typically include observing or conducting a physical inventory count, inspecting the process to record incoming and outgoing inventory, and analyzing the inventory obsolescence process. 4. Comparisons to external market data. For assets actively traded on the open market, auditors may confirm the amounts claimed on the company’s financial statements by researching pricing data. For example, if the company invests in marketable securities that it plans to sell within one year, an auditor could analyze the prevailing market price to confirm their book value. Likewise, a random sample of parts inventory could be compared to online pricing sheets to confirm that items are reported at the lower of cost or market value. 5. Recalculations. Auditors may verify in-house schedules and records by re-creating them. If the auditor’s work matches the client’s work, it confirms that the underlying accounts appear reasonable. Auditors often rely on this procedure for such items as bank reconciliations and schedules of payroll-related expenses (for example, overtime, benefits and tax payments). Let’s work together An effective audit requires coordination between auditors and their clients. Before audit season starts, let’s discuss the types of substantive evidence we expect to gather for each major financial statement category. We can help you anticipate document requests and inquiries, thereby facilitating audit fieldwork. © 2017 « Back Jeff Harden Director, Assurance & Business Advisory Services Negative confirmations are different from positive confirmations as they will not require a response by the recipient. They are only asked to indicate if they disagree with the confirmation amount. Back To All Questions You might also be interested in... What is a positive confirmation?When the audit team sends positive confirmations, Customers of the company will receive a confirmation from the auditor and will be asked to send back a statement with whether or not they agree with the confirmation of the auditor. What is a blank confirmation?Blank confirmations require the customer to input the amount that they owe the company (your audit client). Blank forms will often provide a greater amount of assurance; however, they will often result in lower responses as people are less likely to make the effort to fill them out. Blank confirmations provide the highest level of... Is the audit team required to send accounts receivable confirmations?Yes, for most firms, the audit team is required send confirmations to customers to confirm their outstanding balance at year-end. If the audit team determines that sending confirmations is a waste of time, they can perform alternative procedures, but that typically results in extensive documentation. The primary reason is to test the existence & occurrence... What is meant by a negative confirmation?Negative confirmation is a letter or document requesting that the recipient should only respond to the sender if there were an issue with the contents of the message or the recipient wanted to opt-out of the event that the letter had addressed.
What is a positive confirmation?Positive confirmation request.
A request that the confirming party respond directly to the auditor by providing the requested information or indicating whether the confirming party agrees or disagrees with the information in the request.
What are the two types of confirmations?There are two types of confirmations: A positive confirmation requests that the recipient complete a form confirming account balances (for example, how much a customer owes the company). A negative confirmation requests that the recipient respond only if the balance is inaccurate. 2.
What is the difference between a positive and a negative confirmation What are the advantages and disadvantages of each type?Positive confirmations are more reliable because the auditor can perform follow-up procedures if a response is not received from the customer. With a negative confirmation, failure to reply must be regarded as a correct response, even though the debtor may have ignored the confirmation request.
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