Negative assurance is a representation provided by an auditor indicating that, based on their review and procedures performed, they have not found any evidence suggesting that specific facts or financial statements are misstated or inaccurate. It is often utilized in situations where a less rigorous review is conducted compared to a full audit, such as in the context of interim financial statements or certain limited assurance engagements.
How Negative Assurance Works
When an auditor provides negative assurance, they are essentially stating that nothing has come to their attention during their review that would lead them to believe the information is materially misstated. This method contrasts with positive assurance, where the auditor explicitly states that the information is accurate to the best of their knowledge after a thorough examination.
Key Steps in Providing Negative Assurance
- Review Procedures: The auditor performs limited procedures, such as analytical reviews and inquiries, to gather sufficient evidence.
- Evaluation: The auditor evaluates the results of these procedures to determine if any material misstatements or inconsistencies arise.
- Statement of Assurance: Based on the evaluation, the auditor issues a statement indicating that nothing has come to their attention to suggest significant issues.
Applicability and Examples
Negative assurance is commonly used in:
- Interim financial reviews.
- Comfort letters for securities offerings.
- Due diligence for mergers and acquisitions.
Example in Practice
Consider a company seeking a review of their interim financial statements. An auditor performs limited procedures and concludes with a report stating, “Based on our review, nothing has come to our attention that causes us to believe that these interim financial statements are not prepared in accordance with applicable accounting standards.”
Comparisons with Positive Assurance
| Aspect | Negative Assurance | Positive Assurance |
|---|---|---|
| Nature | No contrary evidence found | Explicit verification of accuracy |
| Level of Assurance | Limited | High |
| Review Scope | Analytical procedures and inquiries | Detailed examination and testing |
| Common Usage | Interim reviews, comfort letters | Full financial audits |
Related Terms
- Positive Assurance: An assertion confirming that information is free of material misstatement after a comprehensive audit.
- Limited Assurance: A level of assurance provided where the auditor concludes that the review has not identified any material modifications that should be made to the financial statements.
- Reasonable Assurance: A high but not absolute level of assurance made to reduce audit risk to an appropriately low level.
FAQs
Q1. What is the primary difference between negative and positive assurance?
Q2. When is negative assurance typically used?
Q3. Does negative assurance guarantee the absence of misstatements?
Q4. Can negative assurance be used in statutory audits?
Summary
Negative assurance provides a useful framework for auditors to express limited assurance based on procedures that highlight the lack of contrary evidence. While it is less comprehensive than positive assurance, it is suitable for specific contexts such as interim reviews, due diligence, and certain regulatory requirements. Understanding the distinctions and applications of negative assurance is crucial for stakeholders relying on audit and review services.
References
- International Auditing and Assurance Standards Board (IAASB)
- American Institute of CPAs (AICPA)
- Financial Reporting Council (FRC)
This entry provides a comprehensive overview of negative assurance, ensuring readers have a deep understanding of its role in auditing and financial reporting.
