Negative Assurance

Key takeaways

• Negative assurance is an auditor’s statement that nothing came to their attention to indicate material misstatements or fraud.
• It is used when a full, positive (express) assurance audit is not performed.
• The procedures are more limited than a full audit; negative assurance does not prove the absence of wrongdoing, only that none was found from the procedures performed.

What is negative assurance?

Negative assurance describes a level of comfort an auditor expresses when a review or limited procedures find no evidence contradicting the presented information. Rather than providing affirmative proof that financial statements are free of material misstatement, the auditor states that nothing came to their attention to suggest the statements are misstated.

This form of assurance is appropriate when the nature and extent of work do not support the stronger, positive (express) opinion that accompanies a full audit.

How it differs from positive assurance

• Positive assurance: Issued after a full audit based on extensive testing and evidence. The auditor provides an explicit opinion that the statements are presented fairly in accordance with applicable standards.
• Negative assurance: Issued after limited procedures (e.g., inquiries, analytical review). The auditor states only that they are not aware of any material misstatements, without affirmatively asserting the statements are correct.

When negative assurance is used (special considerations)

• Reviews of financial statements previously certified by another accountant.
• Certain securities offering contexts where a review, rather than a full audit, is requested.
• Situations where a full GAAP-compliant audit is impractical or not legally required.

Typical characteristics:
* Procedures are less extensive than for a full audit (e.g., analytical procedures, inquiries, limited testing).
* The auditor obtains sufficient appropriate evidence for a review-level opinion, but not the level required for a positive assurance opinion.
* Negative assurance does not guarantee no illegal activity occurred — it only reports that the auditor’s procedures did not reveal any such instances.

Example

An auditor reviews Company ABC’s fiscal 2019 financial records. They examine ledgers, perform analytical procedures, and interview management, but do not perform exhaustive testing of every transaction. The review uncovers no evidence of fraud or material errors. The auditor issues a negative assurance statement indicating nothing came to their attention to suggest the financial statements are materially misstated.

FAQs

Q: What exactly does “nothing came to our attention” mean?
A: It means the auditor’s review procedures did not identify evidence of material misstatement; it is not an absolute guarantee.

Q: Can negative assurance be relied on as much as a full audit?
A: No. It provides a lower level of assurance and should be treated accordingly.

Q: When is positive assurance required?
A: Positive assurance is generally required for audited financial statements, such as those of public companies or other situations mandated by law or regulation.

Bottom line

Negative assurance is a practical, limited-level assurance used when a full audit isn’t performed. It communicates that limited procedures disclosed no evidence of material misstatement, but it is not a substitute for the stronger, affirmative assurance derived from a full audit.