Positive vs. Negative vs. Blank Confirmations: What Is the Difference?
Positive vs. Negative vs. Blank confirmation is something auditors struggle to choose between when doing balance and audit confirmation. Auditors use their professional judgement to determine which balance confirmation method works best in reference to the audit’s risk of material misstatement. A good auditor must use analytics, systematic thinking, and objective judgments to determine which confirmation method to apply. Before making a decision, an auditor has to make 2 primary judgments to accept an external confirmation from a third party.
- The external party’s independence
- External party’s knowledge of the account and intent
The value of the confirmation relies completely on the independence of the external party. Example – When an auditor sends a confirmation of a fraudulent account receivable to the person who committed the fraud, in this case, the value of the confirmation is nil, as the fraudster would try their best to conceal their activities.
This is why it becomes crucial to confirm the account balance with a third party, as it explains the managerial assertions behind the stated balance. In this blog, we’ll break down the difference between the types of confirmation decisions an auditor has to make:
Types of Confirmation Decisions
1. Positive Confirmation
A positive confirmation is when a letter is sent to the debtor requesting direct confirmation of the account balance. If the balance is inaccurate, the debtor has to provide a reason why there’s a difference between the numbers. If the balance is accurate, then the debtor simply has to confirm the account balance by sending back a written letter.
Some examples of information that’s needed from auditors include confirming the following:
- The amounts and descriptions of various types of liabilities
- Bank account information, including balance at the time of verification
- Inventory amounts and the type of inventory
- Investments or securities associated with the account
- Copies of sales invoices to make sure sales were legit
- Information or copies of shipping invoices to ensure products/services were provided
2. Negative Confirmation
In a Negative confirmation, a letter is sent to the debtor that highlights a specific account and the balance in the account. The third party can then choose to reject the balance in the account and share their number for a suggested account, or they can choose to just not respond to the letter. If the debtor suggests that the balance is different or doesn’t send a response, it is considered a negative confirmation. Here are all the places where negative confirmations are most effective:
- The risk of material misstatement is low
- The items are similar and have relatively small value
- Low probability of the external party’s number being inaccurate with internal figures
- Expectation that the third party will read and consider confirmation.
3. Blank Confirmation Form
In the end, Blank Confirmations are also a type of positive confirmation. In a Blank Confirmation Form, the debtor has to return a letter detailing the account balance. The auditors then use the stated number by debtor to cross-reference against the listed receivable balance to ensure accuracy.
Why Use Positive Confirmations?
Positive confirmation is an auditing inquiry that requires customers to respond to confirm the accuracy of an item. A positive confirmation requires proof of accuracy by affirming that the original information was correct or by providing correct information if the information is incorrect.
Positive confirmation can also be used to verify accounts payable and accounts receivable, or companies. Auditors can verify the accuracy of the accounts receivable records being examined by determining if the records reflect the transactions that happened between the company and the customers. Auditors can sometimes also contact the customers directly to ensure that the listed account actually exists.
Why Use Negative Confirmations?
Negative confirmations are better in terms of cost and efficiency. It’s far easier to distribute negative confirmations in comparison to positive confirmations. So, auditors are able to distribute more for the same total cost.
Based on the auditor’s level of risk detected, they may need to confirm with hundreds of customers. In this specific case, negative confirmations are far more efficient than positive confirmations.
Negative confirmation can also be used to provide an audit balance of the account balance while an auditor is testing internal controls. Generally, negative confirmations are most often used in audits, where the consumer is the general public. Municipalities, retail stores, and banks are all typical audit clients, and they tend to use negative confirmations.
The primary factors that dictate a confirmation decision are:
- Materiality of receivables
- Number and size of individual accounts
- Control risk
- Inherent risk
- Effectiveness of the confirmation technique
- Availability of corroborative audit evidence
Why Use Blank Confirmation Forms?
From the auditor’s perspective, blank confirmations provide stronger audit evidence than both positive and negative confirmations. The reasoning is simple: a blank space is harder to ignore or mechanically tick off, forcing the respondent to actively engage with the numbers. That said, they’re also more costly and time-consuming, so auditors typically reserve them for situations where accuracy is critical and the risk of misstatement is high.
Practical use cases for blank confirmations often appear in industries or accounts where fraud risk or misstatements are more likely. For example, when auditing financial institutions, high-value receivables, or related-party transactions, blank confirmations help verify balances with an extra layer of assurance.
Auditors typically decide to use blank confirmations when these factors weigh in:
- High risk of misstatement where standard confirmations may not be reliable.
- Material accounts where errors could significantly affect financial statements.
- Suspicion of fraud or manipulation in reported balances.
- When corroborative evidence is weak, the confirmation itself carries more weight.
Frequently Asked Questions
Why do auditors use confirmations?
Confirmations give auditors independent verification to confirm account balances directly from third parties. This is done to reduce reliance on client-provided numbers and strengthen the reliability of audit evidence.
What’s the difference between positive, negative, and blank confirmations?
There are some core differences between the 3 types of confirmations, such as:* Positive confirmations – They require the recipient to confirm whether the stated balance is correct or not.* Negative confirmations – They require a recipient to only confirm if the balance is wrong than the stated balance.* Blank confirmations – They don’t show any balance at all; the recipient has to fill it in, and the auditor confirms it from their sources.
When are negative confirmations typically used?
Negative confirmations are usually sent when the risk of misstatement is low, internal controls are tightly monitored, and there are many small, homogenous balances (such as retail and banking industries).
What are some instances where an auditor would choose blank confirmations?
Blank confirmations are harder for recipients to rubber-stamp, so they provide stronger evidence whether the balance is true or not. Auditors use them when there’s a higher risk of fraud, material misstatements, or when other evidence is weak.
Which type of confirmation is most reliable?
Blank confirmations are the strongest type of confirmation method, followed by positive confirmations. Negative confirmations are the least reliable but most cost-effective, as silence is treated as an agreement, which may not reflect reliability.
Conclusion
Every type of confirmation (Positive, negative, and blank) has its own type of role in the audit process. Positive confirmation provides the perfect middle ground, negative confirmation is effective, and blank confirmations offer the highest assurance in sensitive high-risk areas.
Not one method is better than another; it depends on the specific use case and factors such as materiality, control risk, and the reliability of other evidence. The best way to go about it is to mix and match these techniques to balance efficiency, accuracy, and match the approach to a specific risk profile.
