Positive Confirmation

What Is Positive Confirmation?

Positive confirmation is an auditing inquiry that requires the customer to answer, affirming the precision of a thing. Positive confirmation requires proof of precision by asserting that the original data was right or by giving the right data if wrong.

Figuring out Positive Confirmation

Positive confirmation is part of the confirmation procedures that auditors use to affirm specific snippets of data. The beneficiary of the letter is to reply to affirm exactness or supply data and send it back to the auditor. A few instances of the data required from auditors incorporate affirming the accompanying:

• The amounts and portrayals of different types of liabilities
• Bank account data including balances
• Inventory amounts and types
• Investments or protections
• Duplicates of sales solicitations to guarantee sales were made
• Data or duplicates of delivery solicitations to guarantee products were transported

Confirmation Analysis

Auditors likewise utilize positive confirmation letters to check accounts payable and accounts receivable or companies. Accounts payables are short-term debts owed by companies to their providers. Accounts receivables address money owed by a company's customers for the sale of goods. Receivables and payables commonly have payment terms of 30, 60, or 90 days — meaning a payment should be made inside that time period.

An auditor can confirm the precision of the accounts receivable records being inspected by determining assuming the records accurately mirror the transactions that have happened between the company and its customers. Reaching customers straightforwardly assists auditors with checking that listed accounts really exist, that balances displayed as owed are right, and that payments set apart as received are true.

Accounts receivables are short-term assets and can be involved by companies as collateral to acquire loans or financing from banks. Thus, it's important that the receivables are audited to affirm that the sales were made as well as affirm that the funds from the sales are being collected on time.

In the event that a company wishes to audit its accounts payable records, it must survey any friendly funds associated with debt obligations or creditor payments. The interaction might require a survey of billings and a reconciliation of those amounts with payments that were recorded as being made. Furthermore, the business might decide to match the previously mentioned amounts to real withdrawals from payment accounts to affirm precision.

Numerous fintech startups have arisen to address the digitization of this cycle. Taulia, Tipalti, C2F0, and Liquidx are names operating the account payables and account receivables digitization arrangements. These services open entryways of disentanglement as well as difficulties for auditing and positive confirmation matters.

Positive versus Negative Confirmation

While positive confirmation requires supporting data notwithstanding the exactness of the original records, negative confirmation requires a response provided that there is a disparity. During a negative confirmation request, a business might be approached to affirm that an account balance is listed at a specific amount, for example, $100,000. On the off chance that the current account balance is $100,000, no extra action is required.

Assuming the balance varies, extra data must be given to make sense of the difference. Negative confirmation letters are likewise used to learn if the beneficiary has any desire to opt out of an event framed in the letter.

Negative confirmation is all the more commonly utilized in the event that the individual's or alternately business' records are generally viewed as profoundly accurate. Ordinarily, the company getting a negative confirmation is accepted to have severe internal requirements and business rehearses. Thus, negative confirmation is significantly less exorbitant and time-escalated for auditors since they typically just have to send one letter out.

On the other hand, positive confirmation requests are more required since financial records must be outfitted, even on the off chance that the original data in the letter was right. Additionally, positive confirmation requests are bound to be utilized assuming the company's books are associated with having errors. In any case, a positive confirmation letter is more normal in complex transactions since it's more accurate and guarantees that everybody is in total agreement — or has a similar financial data. In lending, for instance, auditors utilize positive confirmations to banks and companies to learn the specific amount of a debt.

Thus, a positive confirmation will in general be a better representation of the financial data than a negative confirmation since an explicit request has been returned by the beneficiary. Assuming that any dispute emerges, a positive confirmation is physical evidence that the data was confirmed.

Illustration of Positive Confirmation

On the off chance that an individual or business entity is chosen for an audit by the Internal Revenue Service (IRS), the taxpayer must create records to assert the data listed on the chose tax returns. The audit could incorporate a positive confirmation request for all types of revenue, verification of applicable deductions taken, and proof of guaranteed gains or losses.

Even assuming that the data required for the audit matches what was reported, all evidence must be submitted to fulfill the audit requirements.

Features

• Positive confirmation requires proof of precision by insisting that the original data was right or by giving the right data if wrong.
• Positive confirmation is an auditing inquiry that requires the customer to answer, affirming the exactness of a thing.
• Positive confirmations are utilized to check the amounts of liabilities, investments, bank accounts, accounts receivables, and payables.