Use of Positive and Negative ConfirmatioUse of Positive and Negative Confirmations

Use of Positive and Negative Confirmations

24 The auditor may use positive or negative external confirmation requests or a combination of both.

25 A positive external confirmation request asks the respondent to reply to the auditor in all cases either by indicating the respondent’s agreement with the given information, or by asking the respondent to fill in information. A response to a positive confirmation request is ordinarily expected to provide reliable audit evidence. There is a risk, however, that a respondent may reply to the confirmation request without verifying that the information is correct. The auditor is not ordinarily able to detect whether this has occurred. The auditor may reduce this risk, however, by using positive confirmation requests that do not state the amount (or other information) on the confirmation request, but ask the respondent to fill in the amount or furnish other information. On the other hand, use of this type of “blank” confirmation request may result in lower response rates because additional effort is required of the respondents.

26 A negative external confirmation request asks the respondent to reply only in the event of disagreement with the information provided in the request. However, when no response has been received to a negative confirmation request, there will be no explicit audit evidence that intended third parties have received the confirmation requests and verified that the information contained therein is correct. Accordingly, the use of negative confirmation requests ordinarily provides less reliable audit evidence than the use of positive confirmation requests, and the auditor ordinarily considers performing other substantive audit procedures to supplement the use of negative confirmations.

27 Negative confirmation requests may be used to reduce the risk of material misstatement to an acceptable level when:

• the assessed risk of material misstatement is low;
• a large number of small balances is involved;
• a substantial number of errors is not expected; and
• the auditor has no reason to believe that respondents will disregard these requests.

28 A combination of positive and negative external confirmations may be used. For example, where the total accounts receivable balance comprises a small number of large balances and a large number of small balances, the auditor may decide that it is appropriate to confirm all or a sample of the large balances with positive confirmation requests and a sample of the small balances using negative confirmation requests.