What is 'Positive Confirmation'

Positive confirmation is an auditing inquiry that requires the customer to respond confirming the accuracy of an item. Positive confirmation requires proof of accuracy by affirming that the original information was correct or by providing the correct information if incorrect.

BREAKING DOWN 'Positive Confirmation'

Both positive and negative confirmation are used when auditing accounts receivable. Positive confirmation is more involved as records must be produced even if the original information was correct, and 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 despite the accuracy of the original records, 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 current account balance is $100,000, no additional action is required.  If the balance differs, 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 listed accounts actually exist, that balances shown as owed are correct, and that payments marked as received are true.

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 a reconciliation of those amounts with payments that were recorded as being made. Additionally, the business may choose to match the aforementioned amounts to actual withdrawals from 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, verification of applicable deductions 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.

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