Negative assurance is a form of limited assurance that is given by the auditors or practitioners in an engagement. In this type of assurance, auditors usually state that nothing has come to their attention to indicate that subject matters or financial statements contain a material misstatement. In this type of assurance, auditors do not give an opinion; they simply say that financial statements look reasonable.
Unlike positive assurance, auditors are not required to obtain sufficient appropriate evidence to form a basis of opinion. In this case, they only need to review if there are any problems with financial statements or subject matters. This is why negative assurance is usually used in a review engagement.
However, the level of risk in negative assurance is higher compared to positive assurance. This is due to, in the audit where auditors give positive assurance, they need to reduce the audit risk to an acceptably low level. Whereas, when only negative assurance is required, auditors can only reduce risk to a moderate level, instead of low.
Positive vs Negative Assurance
To make it easier to understand, we should look at the difference between positive and negative assurance as below:
|Positive vs Negative Assurance
|It is a reasonable assurance
|It is a limited assurance which is a lower level of assurance comparing to the reasonable assurance
|Usually used in an audit engagement
|Usually used in a review engagement
|Auditors give an opinion on subject matters
|Auditors or practitioners do not give an opinion on subject matters
|Usually state in the report as “In our opinion…”
|Usually state in the report as “nothing has come to our attention…”
|The risk is reduced to an acceptably low level
|The risk is reduced to a moderate level
|Auditors need to obtain sufficient appropriate evidence to form a basis for an opinion
|Auditors or practitioners only need to review subject matters
*We use the term “practitioners” here because negative assurance is usually used in a review engagement which is not an audit engagement.