Negative Confirmation

AAA

DEFINITION of 'Negative Confirmation'

A request by an auditor sent to a sample of a company's customers asking them to respond only if they find a discrepancy between their books and the account recorded on the financial statements of the company being audited. Negative conformation is 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.

INVESTOPEDIA EXPLAINS 'Negative Confirmation'

Negative confirmation is simply a professional way for an auditor to say "don't bother me unless there is a problem." Sending out a negative conformation as opposed to a positive conformation, which requires a response, can save time that would be spent tracking replies and hounding companies that are late in responding. The accountant is just making sure both companies have the same numbers.


For example, there could be a negative request to a car manufacturer on the sale of 200 cars, which were sold to a dealership for $6 million. If this was the correct transaction, the manufacturer would not reply; if the cost price was only $5 million, the manufacturer would notify the accountant of the discrepancy in the dealership's books.

RELATED TERMS
  1. Auditing Evidence

    The information collected for review of a company's financial ...
  2. Negative Assurance

    A representation that particular facts are believed to be accurate ...
  3. Audit

    1. An unbiased examination and evaluation of the financial statements ...
  4. Auditor's Report

    Recorded in the annual report, the auditor's report tests to ...
  5. Generally Accepted Accounting Principles ...

    The common set of accounting principles, standards and procedures ...
  6. Independent Auditor

    A certified public accountant who examines the financial records ...
Related Articles
  1. Investing Basics

    12 Things You Need To Know About Financial ...

  2. Insurance

    Getting A Job As The Tax Man

  3. Personal Finance

    A Look At Accounting Careers

  4. Retirement

    Avoid An Audit: 6 "Red Flags" You Should ...

Hot Definitions
  1. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  2. Conduit Issuer

    An organization, usually a government agency, that issues municipal securities to raise capital for revenue-generating projects ...
  3. Financing Entity

    The party in a financing arrangement that provides money, property, or another asset to an intermediate entity or financed ...
  4. Hyperinflation

    Extremely rapid or out of control inflation. There is no precise numerical definition to hyperinflation. Hyperinflation is ...
  5. Gross Rate Of Return

    The total rate of return on an investment before the deduction of any fees or expenses. The gross rate of return is quoted ...
  6. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
Trading Center