Negative Assurance

What Is Negative Assurance?

Negative assurance is a determination by an auditor that a particular set of facts is believed to be accurate since no contrary evidence has been found to dispute them. Negative assurance is normally used by auditors in situations where it is not possible to positively confirm the accuracy of financial reports.

The goal of negative assurance is to confirm that no evidence of fraud has been found or that any legal accounting practices were found to be violated.

Key Takeaways

  • Negative assurance is a confirmation from an auditor that certain facts are accurate because there is no evidence to the contrary.
  • When positive assurance (the proof of facts) is not applicable, negative assurance is used.
  • The purpose of negative assurance is to confirm that no fraud or violations have been found.
  • Negative assurance is not stating that any illegal activity did not occur, it is stating that the auditor could not find any instances of illegal activity.

Understanding Negative Assurance

Negative assurance usually arises in the absence of positive assurance. A positive assurance of accuracy is considered stronger and means that the auditor has done sufficient work to state that a company's financial statements provide an accurate picture of its true financial condition based on proofs.

Positive assurance is required for certain audited financial reports released by public companies. Since fully auditing a public company in accordance with generally accepted accounting principles (GAAP) is a large undertaking, a positive assurance is normally issued only when legally required.

Special Considerations

Negative assurance is most often issued when an accountant is asked to review certified financial statements prepared by another accountant. In this case, since another accountant has already certified the accuracy of the statements, a negative assurance is often seen as sufficient to confirm that the statements are free of material misstatements. Negative assurance opinions are also issued when an accountant is asked to review statements associated with the issuance of securities.

To issue a negative assurance opinion, the accountant must gather audit evidence directly and may not rely on indirect evidence, that is, evidence provided by a third party. The procedures used in the preparation of a negative assurance opinion are not as stringent as those required for a positive assurance opinion.

It is important to note that negative assurance is not stating that any illegal activity did not occur, it is stating that the auditor could not find any instances of illegal activity.

Example of Negative Assurance

Company ABC hires an auditing firm to go over its financials from the fiscal year 2019. The auditor assigned to the case looks over all the accounting documents, which include general ledgers, journals, and other various financial documents. The auditor does not check every specific entry but does a comb-through of all of the relevant information. The auditor then interviews employees and management on specific topics.

After this review, the auditor does not find any instances of fraud or any accounting violations. The auditor then issues a negative assurance that confirms no issues, errors, or misstatements were found.

What Does Negative Assurance Mean?

Negative assurance refers to the level of certainty that something is accurate because no proof to the contrary is present. In other words, since there is no proof that the information is inaccurate or that deceptive practices (e.g., fraud) occurred, it is presumed to be accurate.

What Is Positive Assurance?

Positive assurance identifies proof of facts during an audit. By documenting proof, an auditor can affirm no fraud has been committed. In the absence of positive assurance, negative assurance may be used.

What Does Assurance Mean in an Audit?

Assurance in auditing refers to the opinions issued by a professional regarding the accuracy and completeness of what's analyzed. For example, an accountant assuring that financial statements are accurate and valid asserts that they have reviewed the documents using acceptable accounting standards and principles.

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  1. AICPA. "Consideration of Fraud in a Financial Statement Audit."