Negative Assurance
What is Negative Assurance?
Negative assurance is an accounting term used by auditors to inform external parties that a particular group of facts or financial data is deemed to be accurate since no contradicting evidence has been uncovered to dispute it. In other words, negative assurance confirms what an accountant does not know.
Negative assurance does not mean discrepancies are not present or that the audited company violated accounting regulations or committed fraud. It only reflects that the accountant is not aware of any such issues after conducting their review.
Summary
- Negative assurance is a term used by accountants to inform external parties that the financial data reviewed is accurate since no contradicting evidence has been uncovered to dispute it.
- It does not mean discrepancies are not present – only that the accountant is not aware of it after conducting their review.
- Negative assurance is used when an auditor reviews another auditor’s work completed for a company or reviews financial statements that will be used as part of an upcoming securities issuance.
When Does Negative Assurance Occur?
Negative assurance often occurs under the following two scenarios:
- One auditor reviews another auditor’s work completed for a company.
- An auditor reviews financial statements that will be used as part of an upcoming securities issuance.
The first scenario typically occurs when an accountant is asked to review the certified financial statements already prepared by another accountant. The purpose of the second review is to confirm to external parties that the statements are indeed accurate and free from error.
It should be noted that in order to issue a negative assurance opinion, the examining accountant still needs to conduct the review directly and obtain evidence, as opposed to relying on information or evidence provided by third-party sources.
Negative Assurance vs. Positive Assurance
Negative assurance is often compared to positive assurance, which is considered a more reliable form of assurance.
Positive assurance is another term used by auditors to inform external parties as to what they believe based on their examination of financial documents. Positive assurance describes what an accountant knows.
Related Readings
CFI is the official provider of the global Commercial Banking & Credit Analyst (CBCA)™ certification program, designed to help anyone become a world-class financial analyst. To keep advancing your career, the additional resources below will be useful:
Accounting Crash Courses
Learn accounting fundamentals and how to read financial statements with CFI’s online accounting classes.
These courses will give you the confidence to perform world-class financial analyst work. Start now!
Boost your confidence and master accounting skills effortlessly with CFI’s expert-led courses! Choose CFI for unparalleled industry expertise and hands-on learning that prepares you for real-world success.
