What Is The Difference Between Negative Assurance And Positive Assurance?

Negative assurance relates to limited assurance engagements. Due to the lower assurance required, auditors use a negatively worded conclusion. The term audit refers to examination or investigation. An audit is a process through which independent auditors assess a subject matter.

This lesson will discuss these audits, their processes, and why they are done. The DEF area has been among the top five markets in the country in housing starts for each of the last five years, with more than 90,000 single-family starts during that period. During the same period, the DEF metropolitan area has experienced increases in population, personal income, and employment at rates above the national average.

Positive Vs Negative Assurance: What Are The Main Differences?

However, it may also include specific reports or other financial or non-financial information. Sometimes, however, auditors may also present negative assurance. A negative assurance does not implicate the financial statements do not meet the suitable criteria. However, it is different from a positive assurance. Before understanding how these vary, it is crucial to know the different types of assurance engagements.

As a result, in such a situation, the issuance of this document becomes fruitful. Such a written document from the auditor is annexed to the annual accounts. An expression about Mazda was also rock solid and he knows what he is saying and has based his opinion on his experience and also have the reasons why he is saying that it is BAD.

What Is The Difference Between Negative Assurance And Positive Assurance?

The target of Positive Assurance is to reduce the risk to the lowest level, while that of Negative Assurance is to reduce the risk to a moderate level. Thus the earlier comes under Reasonable Assurance Engagement, and the latter comes under Limited Assurance Engagement. Reasonable engagement provides opinion on positive connotations and involves a lot of scrutinies. On the other hand, Limitation engagement provides opinion on negative connotations with limited resources. An opinion letter, also called a legal opinion, is a letter issued by a legal counsel that facilitates a lender’s due diligence process in a transaction. One auditor reviews another auditor’s work completed for a company. In this lesson, you will learn the definition and examples of analytical review.

Had we performed additional procedures or had we conducted an audit or a review, other matters might have come to our attention that would have been reported to you. We compared the amounts of military sales, commercial sales, and total sales shown in the registration statement with the balances in the appropriate accounts in the company’s accounting records for the respective fiscal years and for the unaudited interim periods and found them to be in agreement. The service of accountants providing letters for underwriters developed following enactment of the Act.

Who Issues Negative Assurance?

Fn 11 Other methods of summarizing the descriptions may also be appropriately used. For example, the letter may present a matrix listing the financial information and common procedures employed and indicating the procedures applied to specific items. Fn 5 If there has been a change in accounting principle during the interim period, a reference to that change should be included herein. You are knowledgeable with respect to the due diligence review process that would be performed if this placement of securities were being registered pursuant to the Securities Act of 1933 .

Companies issues a Negative Assurance letter from the auditors for several purposes. Issuance of this letter by the Certified Public Accountant is only valid in America. In the case of the other countries, issuance by some authorized Auditor or Accountant is only acceptable. At the time of the public issue of equity and debt also, it is acceptable as a valid document by the public. It is also useful for cross-verifying illegal activities post-submission by the designated Accountant. Thus this document, irrespective of having negation connotation, is useful in all senses. Learn accounting fundamentals and how to read financial statements with CFI’s free online accounting classes.

Negative Assurance Vs Positive Assurance

This letter, along with the company’s financial statements is useful. When auditors are conducting reasonable assurance engagement they provide positive assurance i.e. either something is GOOD or BAD. Such kinds of assurances give higher level of assurance as the expression of opinion is more straight forward and are more clear. In the above opinion, auditors do not assure the users of the financial statements being true and fair. Instead, it implies that auditors did not come across any information that can prove otherwise.

The underwriter has given the accountants a letter including the representations regarding their due diligence review process, as described in paragraphs .06 and .07, and the comfort letter refers to those representations. In addition, the example assumes that the accountants were unable, or were not requested, to perform an SAS No. 71 review of a subsequent interim period and therefore no negative assurance has been given. In our opinion [include the phrase “except as disclosed in the registration statement,” if applicable], the consolidated financial statements and financial statement schedules audited by us and included in the registration statement comply as to form in all material respects with the applicable accounting requirements of the Act and the related rules and regulations adopted by the SEC.

Letters For Underwriters And Certain Other Requesting Parties

In positive assurance, auditors state that in their opinion, the subject matter conforms to the suitable criteria. However, the negative assurance expresses that auditors did not come across information that implicates otherwise. Fn 1 The example includes financial statements required by SEC regulations to be included in the filing. If additional financial information is covered by the comfort letter, appropriate modifications should be made.

After the auditing process is over, the issuance of a Negative Assurance letter takes place. The Auditors issues this letter after analyzing all proofs and pieces of evidence.

Financial statement users are interested in the concept of materiality because it can make a difference in their decisions. Let’s take a closer look at materiality and how it is used in auditing those financial statements. The audit process generally has the objective of rendering an opinion on the accuracy of a company’s financial statements. The process has distinct steps as it unfolds. In this lesson we’ll follow each step and show how the steps apply to a retail business. We have not examined any management’s discussion and analysis of the company as of or for any period subsequent to December 31, 19X5; although we have made an examination of the company’s Management’s Discussion and Analysis for the year ended December 31, 19X5, included in the company’s registration statement, the purpose of the examination was to enable us to express our opinion on such Management’s Discussion and Analysis, but not on the management’s discussion and analysis for any interim period within that year. Therefore, we are unable to and do not express any opinion on the Management’s Discussion and Analysis for the three-month period ended March 31, 19X6, included in the registration statement, or for any period subsequent to March 31, 19X6.

• It is important, therefore, that the procedures fn 13 to be followed by the accountants be clearly set out in the comfort letter, in both draft and final form, so that there will be no misunderstanding about the basis on which the accountants’ comments have been made and so that the underwriter can decide whether the procedures performed are sufficient for his or her purposes.
• 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.
• However, they require less audit evidence to reach limited assurance.
• The Structured Query Language comprises several different data types that allow it to store different types of information…
• In negative assurance services, auditors use a negative tone to provide their opinion.

Limited assurance engagements include different criteria compared to reasonable assurance engagements. 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. Each of the comments in the letter is in response to a requirement of the underwriting agreement.

The letter would also contain paragraphs 8, 10, and 11 of the letter in example F. The references to May 31, 19X6, and June 23, 19X6, in paragraph 6 of that letter are changed to June 30, 19X6, and July 20, 19X6, respectively.

Fn 10 In some cases the company or the underwriter may request that the independent accountants report on “selected financial data” as described in section 552, Reporting on Condensed Financial Statements and Selected Financial Data. When the accountants report on this data and the report is included in the registration statement, separate comments should not be included in the comfort letter (see paragraph .30).

Negative Assurance or a limited assurance is a written document issued by Auditors during an assignment. In this type of engagement, the auditor issues a statement in writing that during the course of his limited review, he could not smell or find any facts or evidence that is susceptible to assume or indicate that the financial statements or subject matters of audit contain a wrong or misleading statement. Reasonable assurance engagements usually include external auditors. Since these audits involve higher risks, auditors cover them with more substantive procedures and testing. Similarly, auditing standards have more strict rules and regulations towards these engagements. In these engagements, auditors perform audit procedures to collect evidence and reach a reasonable assurance level. The corollary is negative assurance, a statement about what the CPA does not know.

• An accountant issuing a comfort letter is one of a number of procedures that may be used to establish that an underwriter has conducted a reasonable investigation.
• Are there any examples you could point to that…
• When one of the parties identified in paragraphs .03, .04, and .05 requests a comfort letter and has provided the accountants with the representation letter described above, the accountants should refer in the comfort letter to the requesting party’s representations (see example P [paragraph .64]).
• Our audits of the consolidated financial statements for the periods referred to in the introductory paragraph of this letter comprised audit tests and procedures deemed necessary for the purpose of expressing an opinion on such financial statements taken as a whole.
• For none of the periods referred to therein, nor for any other period, did we perform audit tests for the purpose of expressing an opinion on individual balances of accounts or summaries of selected transactions such as those enumerated above, and, accordingly, we express no opinion thereon.

Because the procedures described above do not constitute an examination of prospective financial statements in accordance with standards established by the American Institute of Certified Public Accountants, we do not express an opinion on whether the prospective financial statements are presented in conformity with AICPA presentation guidelines or on whether the underlying assumptions provide a reasonable basis for the presentation. Furthermore, there will usually be differences between the forecasted and actual results, because events and circumstances frequently do not occur as expected, and those differences may be material. We make no representations about the sufficiency of such procedures for your purposes. Had we performed additional procedures or had we made an examination of the forecast in accordance with standards established by the AICPA, matters might have come to our attention that would have been reported to you.

We have not audited any financial statements of Example City, Any State Utility System as of any date or for any period subsequent to June 30, 19X5; although we have conducted an audit for the year ended June 30, 19X5, the purpose of the audit was to enable us to express our opinion on the financial statements as of June 30, 19X5, and for the year then ended, but not on the financial statements for any interim period within that year. Therefore, we are unable to and do not express any opinion on the financial position, results of operations, or cash flows as of any date or for any period subsequent to June 30, 19X5, for the Example City, Any State Utility System. The foregoing procedures are less in scope than an examination, the objective of which is the expression of an opinion on management’s assumptions, the pro forma adjustments, and the application of those adjustments to historical financial information.