Statements on Auditing Procedure
Issued by the Committee on Auditing Procedure, American Institute of Accountants, 13 East 41st Street, New York 17, N. Y.
Copyright 1943 by American Institute of Accountants
Confirmation of Receivables (Positive and Negative Methods)
"EXTENSIONS OF AUDITING PROCEDURE," approved by the member-ship of the American Institute of Accountants and issued in 1939, contains the following recommendation:
"That hereafter, wherever practicable and reasonable, and where the aggregate amount of notes and accounts receivable represents a significant proportion of the current assets or of the total assets of a concern, confirmation of notes and accounts re-ceivable by direct communication with the debtors shall be re-garded as generally accepted auditing procedure in the examina-tion of the accounts of a concern whose financial statements are accompanied by an independent certified public accountant's report; and that the method, extent, and time of confirming receivables in each engagement, and whether of all receivables or a part thereof, be determined by the independent certified public accountant as in other phases of procedure requiring the exercise of his judgment."
It will be noted that the method of confirming receivables in each engagement is left to the judgment of the independent certified public accountant as in other phases of procedure requiring the exercise of his judgment.
Generally speaking there are two methods of confirming receiv-ables by direct communication with the debtor, known as the "positive" and the "negative" methods. When the "positive" method is used a communication is addressed to the debtor asking him to confirm to the independent public accountant the accuracy or other-wise of the balance shown. When the "negative" method is used a communication is addressed to the debtor asking him to advise the independent public accountant only in cases in which the amount stated is incorrect.
In dealing with confirmation of receivables from the government, the committee stated that "Extensions of Auditing Procedure" "did