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.
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.