What is 'Positive Confirmation'

Positive confirmation is an auditing inquiry that requires the customer to respond to the auditor whether the customer's records do or do not correspond with the auditor's records. Positive confirmation requires proof of accuracy, affirming that the original information was correct or providing the correct information if the original information is found to be inaccurate.

BREAKING DOWN 'Positive Confirmation'

Both positive and negative confirmation are used in auditing accounts receivable. Positive confirmation is the more involved of the two options, as records must be produced even if the original information was correct; it is more likely to be used if the company's books are suspected to have errors.

Positive vs. Negative Confirmation

While positive confirmation requires supporting information regardless of whether the original records are accurate, negative confirmation requires a response only if there is a discrepancy. During a negative confirmation request, a business may be asked to confirm that an account balance is listed at a specific amount, such as $100,000. If the account balance currently reflects the amount as $100,000, then no additional action is required to satisfy the request. If the balance reflects any amount aside from $100,000, additional information must be provided to justify the difference.

Negative confirmation is more commonly used if the individual's or business's records are generally considered to be highly accurate by nature, often based on stringent internal requirements or business practices.

Confirmation Analysis

An auditor can verify the accuracy of the accounts receivable records being examined by seeing if those books correctly reflect transactions that have occurred between the company and its customers. Contacting customers directly helps auditors verify that accounts listed actually exist, that balances shown as owed are correct and that payments marked as received are accurate.

If a company wishes to audit its accounts payable records, it must review any outgoing funds associated with debt obligations or creditor payments. This may require a review of billings and reconciling those amounts with payments that were recorded as being made. Additionally, the business may choose to match the aforementioned amounts to actual withdrawals from any payment accounts to confirm accuracy.

Example of Positive Confirmation

If an individual or business entity is selected for an audit by the Internal Revenue Service (IRS), the taxpayer must produce records to affirm the information listed on the selected tax returns. This includes positive confirmation of all sources of income, applicable deductions that were taken, and proof of claimed gains or losses. Even if the information required for the audit matches what was reported, all evidence must be submitted to satisfy the audit requirements.

RELATED TERMS
  1. Audit Cycle

    The accounting process that auditors employ in the review of ...
  2. Audit

    An unbiased examination and evaluation of the financial statements ...
  3. Auditability

    The ability to achieve accurate results in the examination of ...
  4. Negative Confirmation

    A request by an auditor sent to a sample of a company's customers ...
  5. Certified Internal Auditor - CIA

    A certification offered to accountants who conduct internal audits. ...
  6. Internal Audit

    The examination, monitoring and analysis of activities related ...
Related Articles
  1. Financial Advisor

    Examining A Career As An Auditor

    Stricter government regulations have put auditing professionals in demand.
  2. Taxes

    What Does an Auditor Do?

    An auditor ensures that organizations maintain accurate and honest financial records.
  3. Taxes

    What's an Audit?

    An audit is an objective examination of accounting records that makes sure the records are a fair and accurate representation of the transactions they claim to represent.
  4. Personal Finance

    Financial Auditor: Job Description & Average Salary

    Discover what it means to hold a financial auditor position, including typical job duties, education and training, required skills and expected salary.
  5. Personal Finance

    Financial Auditor: Career Path & Qualifications

    Learn more about what it takes to become an internal or external financial auditor, and determine whether the profession is right for you.
  6. Personal Finance

    Career Advice: Accounting Vs. Auditing

    Understand the subtle distinctions between accounting and auditing, and learn what each offers a new graduate in terms of salary, job security and daily life.
  7. Managing Wealth

    Internal Auditor: Job Description & Average Salary

    Learn about what the job of internal auditor entails, as well as the median salary, education and certifications required and future career path.
  8. Personal Finance

    Internal Auditor: Career Path & Qualifications

    Find out what kind of work internal auditors do in large organizations, and learn more about how to get started working in the field.
  9. Taxes

    How Does An IRS Audit Work?

    It doesn't automatically mean an IRS agent will be ringing your doorbell. Here are the different types of IRS audits and how to handle them.
  10. Insights

    IT Security Auditing

    Find out about this promising career that can match IT with business studies.
RELATED FAQS
  1. What should I do to prepare for an IRS audit?

    Find out how to prepare for an IRS audit, what kinds of audits you might face and what kinds of habits you should develop ... Read Answer >>
  2. What is an IRS letter audit / audit by correspondence?

    Learn about IRS letter audits, how tax returns are selected for audits and the common outcomes in the letter audits conducted ... Read Answer >>
  3. Are IRS audits random?

    Learn about how the U.S. Internal Revenue Service (IRS) conducts its tax audits based on random selection, document matching ... Read Answer >>
  4. How important are contingent liabilities in an audit?

    Read about the importance of contingent liabilities during an audit, why audits are necessary and how contingent liabilities ... Read Answer >>
  5. What are some examples of inherent risk?

    Read about the nature of inherent risk in preparing and executing financial audits, including some common situations that ... Read Answer >>
  6. Can the IRS audit you after a refund?

    Learn how the U.S. Internal Revenue Service (IRS) can conduct a tax audit even after a taxpayer was issued a tax refund in ... Read Answer >>
Hot Definitions
  1. Graduate Record Examination - GRE

    A standardized exam used to measure one's aptitude for abstract thinking in the areas of analytical writing, mathematics ...
  2. Graduate Management Admission Test - GMAT

    A standardized test intended to measure a test taker's aptitude in mathematics and the English language. The GMAT is most ...
  3. Magna Cum Laude

    An academic level of distinction used by educational institutions to signify an academic degree which was received "with ...
  4. Cover Letter

    A written document submitted with a job application explaining the applicant's credentials and interest in the open position. ...
  5. 403(b) Plan

    A retirement plan for certain employees of public schools, tax-exempt organizations and certain ministers. Generally, retirement ...
  6. Master Of Business Administration - MBA

    A graduate degree achieved at a university or college that provides theoretical and practical training to help graduates ...
Trading Center