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. Generally Accepted Accounting Principles ...

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

    A certified public accountant who examines the financial records ...
  5. Audit

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

    Recorded in the annual report, the auditor's report tests to ...
Related Articles
  1. Investing Basics

    12 Things You Need To Know About Financial Statements

    Discover how to keep score of companies to increase your chances of choosing a winner.
  2. Insurance

    Getting A Job As The Tax Man

    If you'd like the IRS to pay you some money for a change, consider a career working in taxes.
  3. Personal Finance

    A Look At Accounting Careers

    More than just crunching numbers, this career blends detective work with trouble shooting.
  4. Retirement

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

    Don't make yourself a target - steer clear of these attention-grabbing tax-filing practices.
  5. Professionals

    Examining A Career As An Auditor

    Stricter government regulations have put auditing professionals in demand.
  6. Fundamental Analysis

    What is the difference between a capital gearing ratio and a net gearing ratio?

    Understand the definition of gearing in the finance industry, the difference between net gearing and capital gearing ratios and how they are interpreted.
  7. Investing Basics

    What is the difference between the gearing ratio and the debt-to-equity ratio?

    Dive deeper into gearing ratios: what are they, how are they used and why the debt to equity ratio is one of the most popular analytical gearing tools.
  8. Fundamental Analysis

    What is the difference between interest coverage ratio and DSCR?

    Understand the basics of the interest coverage ratio and the debt-service coverage ratio, including calculations and how each type reflects financial stability.
  9. Investing Basics

    What is the difference between interest coverage ratio and TIE?

    Read about the times interest earned, also known as the interest coverage ratio. Find out why this is an important ratio for investors and creditors.
  10. Investing Basics

    What is accrual accounting used for in finance?

    Read about the accrual method of accounting, its uses and rules, and why it is considered so important for investors, lenders and managers.

You May Also Like

Hot Definitions
  1. Multinational Corporation - MNC

    A corporation that has its facilities and other assets in at least one country other than its home country. Such companies ...
  2. SWOT Analysis

    A tool that identifies the strengths, weaknesses, opportunities and threats of an organization. Specifically, SWOT is a basic, ...
  3. Simple Interest

    A quick method of calculating the interest charge on a loan. Simple interest is determined by multiplying the interest rate ...
  4. Special Administrative Region - SAR

    Unique geographical areas with a high degree of autonomy set up by the People's Republic of China. The Special Administrative ...
  5. Annual Percentage Rate - APR

    The annual rate that is charged for borrowing (or made by investing), expressed as a single percentage number that represents ...
  6. Free Carrier - FCA

    A trade term requiring the seller to deliver goods to a named airport, terminal, or other place where the carrier operates. ...
Trading Center