Negative confirmation is typically used when the accounting controls of a company have historically had very few errors and are thus considered to be strong. The company is asked to double-check the numbers and only confirm if there is a discrepancy.
Why the negative confirmation is considered to be less reliable?
Negative confirmations provide less reliable evidence than positive confirmations because nonresponses are assumed to contain accurate information. The auditor does not know if the intended recipient considered the form or even received it.
Under what circumstances would negative confirmations be more appropriate than positive confirmations?
A negative confirmation requests that the customer respond only when it disagrees with the amount due to the client. Positive confirmations are generally used when an account contains large individual balances or if errors are anticipated because control risk was judged to be high.
Under what conditions do Auditing Standards indicate that negative confirmations may be used?
Negative confirmation requests may be used to reduce audit risk to an acceptable level when (a) the combined assessed level of inherent and control risk is low, (b) a large number of small balances is involved, and (c) the auditor has no reason to believe that the recipients of the requests are unlikely to give them …
What does negative response required mean?
Related Definitions Negative response means a statement from a party stating the party does not wish to listen to the sales presentation or participate in the solicitation presented in the telephone call.
What is the difference between positive and negative confirmation request?
While positive confirmation requires supporting information despite the accuracy of the original records, negative confirmation requires a response only if there is a discrepancy.
What is the difference between a positive and a negative confirmation?
When should positive confirmations be used?
Positive confirmation requires proof of accuracy by affirming that the original information was correct or by providing the correct information if incorrect. Positive confirmations are used to verify the amounts of liabilities, investments, bank accounts, accounts receivables, and payables.
What procedures should you apply in the event of no reply to a request for positive confirmation?
What procedures should you apply in the event of no reply to a request for positive confirmation? In the event of no reply for a positive confirmation, we would resend the confirmations and consider calling the customer to encourage them to reply.
What are the circumstances under which confirmation of accounts receivable is not required?
RECEIVABLE CONFIRMATIONS ARE NOT ALWAYS required if accounts receivable are immaterial, the use of confirmations would be ineffective or combined inherent risk and control risk are low and analytics or other substantive tests would detect misstatements.
Is the decision to send negative external confirmation correct?
Results of confirmations depict high risk of material misstatement and high exception rate. However, since the decision to send negative confirmation was taken on the basis of initial assessment, the decision under the circumstances seems correct. (b) Balance agreed: No further audit work is required.
When to use positive, negative, and blank confirmation?
The three types of confirmation forms are positive confirmation, blank confirmation forms, and negative confirmation. Negative confirmation is best applied when the risk of material misstatement is low, meaning that inherent risk and control risk are relatively low. Auditors’ Assumptions Underlying Confirmations
Which is the best definition of external confirmation?
4. External confirmation is the process of obtaining and evaluating audit evidence through a representation of information or an existing condition directly from a third party in response to a request for information about a particular item affecting assertions in the financial statements or related disclosures.
When to use negative confirmation in an audit?
Negative confirmation is a common industry practice for auditors to accumulate audit evidence from external stakeholders
