A negative confirmation is a way to talk to someone where you only ask them to reply if they don’t agree with what you said. If the recipient doesn’t find any problems, they don’t need to respond, and the sender thinks the information is correct. This method is often used in auditing and financial services to make communication easier and cut down on replies that aren’t needed.
Important Points:
The goal of negative confirmations is to reduce the number of replies so that only problems need to be dealt with. This will improve efficiency.
Auditors can send negative confirmations to a group of a company’s customers and only ask for an answer if there is a difference between the customer’s records and the company’s financial statements. When a company has strong internal controls and a low chance of material misstatement, this method is often used.
Positive Confirmation:
Unlike negative confirmations, positive confirmations need a response from the receiver, no matter if they agree or disagree with the information. Positive confirmations are more solid proof, but they take more time and cost more money.
For example:
Plans for Employee Retirement:
People who are a part of a 401(k) plan with an auto-escalation feature are told that their payment rate will go up unless they choose not to. People who are participating don’t have to answer if they agree with the increase. If they don’t, they do have to respond to opt out.
Revenue Recognition:
A car company might send a store a negative confirmation letter with the sales numbers that have been recorded. If the dealership agrees with the numbers, they don’t need to say anything. If there is a difference, they should let the maker know.
Take a look at:
Negative confirmations work well, but they might not find problems if people forget to answer or don’t respond at all even though there are problems. Because of this, inspectors often use them along with other methods to make sure that financial data is correct.
In conclusion, negative confirmations can be useful in some situations, especially when there isn’t much chance of a mistake and the goal is to improve the speed of communication.
