What is a positive confirmation?
ISA 505.A1 describes positive confirmation as a request designed to produce a response in every case. The confirming party is asked to confirm whether they agree with the information stated or to provide the correct information if they disagree. This contrasts with a negative confirmation, where the party responds only if they disagree.
Positive confirmations come in two forms. The first pre-populates the balance and asks the respondent to agree or disagree. The second (a blank confirmation) asks the respondent to fill in the balance from their own records. ISA 505.A18 notes that blank confirmations provide a higher degree of assurance because the respondent cannot just sign and return without checking. In practice, blank confirmations often produce lower response rates because they require more effort from the respondent. The auditor weighs this trade-off.
ISA 505.A7 directs the auditor toward positive confirmations when the risk of material misstatement is assessed as higher, when individual account balances are large, or when the auditor expects the respondent to pay adequate attention to the request. Bank confirmations are positive confirmations by default in most jurisdictions. For trade receivables, the choice between positive and negative forms depends on the risk assessment per ISA 505.7.
Key Points
- A positive confirmation requires the third party to respond whether they agree or disagree with the stated balance.
- Use positive confirmations when the risk of material misstatement is higher or when individual balances are large.
- A non-response to a positive confirmation is not evidence, so the auditor must perform alternative procedures.
- Blank confirmations (where the respondent fills in the amount) are considered more reliable than confirmations that pre-populate the balance.
Why it matters in practice
Teams often treat a signed, returned positive confirmation as conclusive without evaluating the quality of the response. ISA 505.16 requires the auditor to evaluate the reliability of the response. A confirmation returned with no evidence that the respondent actually checked their records (signed by a junior clerk with no supporting detail) provides less assurance than one returned with a detailed reconciliation. The signature alone is not the evidence. The process behind it is.
When response rates are low, some teams set an arbitrary "acceptable" threshold (such as 50%) and stop following up once they hit it. ISA 505 does not set a minimum response rate. The standard requires alternative procedures for every non-response per ISA 505.12. The threshold is 100% coverage of selected items, not a percentage of responses.
Worked example: Kowalski Meubelen B.V.
Client: Dutch furniture retailer, FY2024, revenue €18M, reporting under Dutch GAAP (RJ), 220 trade receivable accounts totalling €4.1M. The team identifies 28 accounts above €50K, representing €2.6M (63% of the ledger). The risk assessment rates trade receivables as moderate (no significant history of disputes, but the client extended longer payment terms during FY2024).
The team sends positive confirmations to all 28 accounts above €50K and the client's two bank relationships. The positive form is chosen because the balances are individually significant relative to performance materiality of €82K. Blank confirmations are used for bank balances. Pre-populated confirmations are used for trade receivables (the team judges that response rates will drop too far with blank forms given the client's smaller, less sophisticated customer base).
Fifteen of 28 trade receivable confirmations are returned by the deadline. Both bank confirmations are returned and agree. Four trade confirmations disagree: two are timing differences totalling €31K, one relates to a credit note of €8K not yet processed, and the fourth shows a €67K disputed balance requiring investigation. Thirteen positive confirmations received no response. For each, the team tests subsequent cash receipts after year-end against the outstanding invoices. Ten are fully cleared by cash receipts. The remaining three (totalling €185K) are tested against despatch documentation and customer purchase orders.
Positive confirmation vs negative confirmation
A positive confirmation requires a response in all cases. A negative confirmation asks for a response only if the party disagrees. The reliability gap between them is significant. ISA 505.A19 warns that non-responses to negative confirmations do not provide the same level of evidence as responses to positive confirmations, because a non-response could mean the recipient agreed, never received the request, or discarded it without reading.
The practical consequence: negative confirmations are only appropriate when the risk of material misstatement is low and balances are individually small. The auditor must also have reason to believe the respondent will pay attention to the request. For balances above performance materiality or in higher-risk populations, positive confirmation is the default. Using a negative form for a material receivable is difficult to justify under ISA 505.15.
Key standard references
- ISA 505.A1: Describes positive confirmation as a request designed to produce a response in every case.
- ISA 505.A7: Directs the auditor toward positive confirmations when the risk of material misstatement is higher or balances are large.
- ISA 505.A18: Blank confirmations provide a higher degree of assurance than pre-populated forms.
- ISA 505.12: Requires alternative procedures for every non-response to a positive confirmation.
- ISA 505.16: Requires the auditor to evaluate the reliability of each confirmation response.
Related terms
Related reading
Frequently asked questions
What is the difference between blank and pre-populated positive confirmations?
A pre-populated confirmation states the balance and asks the respondent to agree or disagree. A blank confirmation asks the respondent to fill in the balance from their own records. ISA 505.A18 notes that blank confirmations provide a higher degree of assurance because the respondent cannot just sign and return without checking. However, blank confirmations often produce lower response rates because they require more effort from the respondent. The auditor weighs the trade-off between reliability and response rate.
What alternative procedures are required when a positive confirmation receives no response?
ISA 505.12 requires alternative procedures for every non-response to a positive confirmation. The standard does not set a minimum response rate threshold. For trade receivables, the most common alternative is testing subsequent cash receipts against the specific invoices comprising the balance. Where cash receipts are insufficient, the auditor extends testing to despatch documentation, customer purchase orders, or other corroborating records. The goal is 100% coverage of selected items, not an arbitrary response percentage.