Negative confirmation request
Negative confirmation request is a letter or document requesting that the
recipient should only respond to the sender if there were an issue with the
contents of the message or the recipient wanted to opt-out of the event that the
letter had addressed. Harmful confirmation requests can be used in many
business situations and are often used in the financial services industry. The
purpose of communication is to reduce the number of incoming responses an
organization receives in reply to a letter sent to its client base. In a negative
confirmation or consent communication situation, the company or entity
sending the message only receives responses from "no" votes, as opposed to
responses from everybody, regardless of their opinion. A negative confirmation
can be contrasted with a positive confirmation [Hayes].
Negative confirmation requests may be used to reduce audit risk to an
acceptable level when:
- the combined assessed level of inherent and control risk is low;
- a large number of small balances is involved;
- the auditor has no reason to believe that the recipients of the
requests are unlikely to give them consideration.
For example, in the examination of demand deposit accounts in a financial
institution, it may be appropriate for an auditor to include negative confirmation
requests with the customers' regular statements when the combined assessed
level of inherent and control risk is low and the auditor has no reason to believe
that the recipients will not consider the requests. The auditor should consider
performing other substantive procedures to supplement the use of negative
confirmations [PCAOB].
Hayes, A. (2010). Negative Confirmation: Definition, Uses, and Examples. Investopedia. Retrieved from: https://www.investopedia.com/terms/n/negative-confirmation.asp
The Confirmation Process. PCAOB. Retrieved from: https://pcaobus.org/oversight/standards/archived-standards/pre-reorganized-audi ting-standards-interpretations/details/AU330