What Is Negative Assurance?
Let me explain negative assurance directly: it's a determination I, as an auditor, make that a particular set of facts is believed to be accurate because no contrary evidence has come up to dispute them. You'll see this used in situations where positively confirming the accuracy of financial reports just isn't possible.
The goal here is straightforward—I'm confirming that no evidence of fraud has been found or that any legal accounting practices were violated.
Key Takeaways
Negative assurance is my confirmation as an auditor that certain facts are accurate because there's no evidence to the contrary. When positive assurance, which involves proof of facts, isn't applicable, this is what I turn to. The purpose is to confirm that no fraud or violations have been found. Remember, negative assurance isn't stating that any illegal activity did not occur—it's stating that I couldn't find any instances of it.
Understanding Negative Assurance
Negative assurance usually comes into play when positive assurance is absent. Positive assurance of accuracy is stronger, meaning I've done enough work to state that a company's financial statements provide an accurate picture of its true financial condition based on proof.
Positive assurance is required for certain audited financial reports released by public companies. Since fully auditing a public company according to generally accepted accounting principles (GAAP) is a major task, I normally issue positive assurance only when it's legally required.
Special Considerations
I most often issue negative assurance when asked to review certified financial statements prepared by another accountant. In this case, since another accountant has already certified the accuracy, negative assurance is sufficient to confirm the statements are free of material misstatements. I also issue negative assurance opinions when reviewing statements associated with the issuance of securities.
To issue a negative assurance opinion, I must gather audit evidence directly and cannot rely on indirect evidence from a third party. The procedures for preparing a negative assurance opinion are not as stringent as those required for positive assurance.
Important Note
It's crucial to note that negative assurance is not stating that any illegal activity did not occur—it's stating that I, as the auditor, could not find any instances of illegal activity.
Example of Negative Assurance
Take Company ABC, which hires an auditing firm to review its financials from fiscal year 2019. The auditor looks over all the accounting documents, including general ledgers, journals, and various other financial records. I don't check every specific entry, but I do a thorough comb-through of the relevant information. Then, I interview employees and management on specific topics.
After this review, if I don't find any instances of fraud or accounting violations, I issue 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's no proof that the information is inaccurate or that deceptive practices like fraud occurred, I presume it to be accurate.
What Is Positive Assurance?
Positive assurance identifies proof of facts during an audit. By documenting proof, I 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 I issue as a professional regarding the accuracy and completeness of what's analyzed. For example, when I assure that financial statements are accurate and valid, it means I've reviewed the documents using acceptable accounting standards and principles.
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