Negative assurance definition
/What is Negative Assurance?
Negative assurance is a statement by a CPA that no adverse issues have been found regarding the accuracy of a client's financial statements. This approach is usually taken in order to confirm that the CPA has found no evidence of fraud, or evidence that any required accounting practices were breached. This assurance is most commonly given in the following two situations:
When the CPA is asked to render an opinion regarding financial statements that have already received an auditor’s opinion, usually in an earlier period.
Negative assurance is also given when the CPA is asked to render an opinion regarding financial information being relied upon as part of the issuance of securities.
Negative assurance is only permissible when the CPA directly gathers audit evidence, rather than relying upon evidence gathered by a third party. The audit procedures used as the basis for a negative assurance statement are not as robust as what would be required for the more common positive assurance statement.
When to Use Negative Assurance
Negative assurance is used by an auditor when providing limited assurance, typically in engagements that do not require a full audit. Common circumstances include the following:
Review engagements. When the auditor reviews interim or quarterly financial statements, offering assurance that nothing came to their attention indicating material misstatements.
Comfort letters for underwriters. When auditors provide assurance to underwriters during public offerings, stating that nothing has come to their attention suggesting that financial information is materially misstated.
Agreed-upon procedures or special reports. When limited procedures are performed and the auditor does not express an audit opinion.
Internal control reviews. When auditors provide assurance to management or third parties without conducting a full audit of controls.
In these scenarios, negative assurance is appropriate because the auditor performs less extensive procedures and cannot provide the higher level of confidence associated with positive assurance.