Negative Confirmation Definition

What is a negative confirmation?

Negative confirmation is a letter or document requesting that the recipient respond to the sender only if there was a problem with the content of the message or if the recipient wished to withdraw from the event to which the letter was addressed.

Negative confirmation letters can be used in many types of business situations and are often used in the financial services industry. The purpose of communication is to reduce the number of inbound responses an organization receives in response to a letter sent to its customer base. In a negative confirmation or negative consent communication situation, the company or entity sending the message only receives responses of “no” votes, as opposed to responses from everyone, regardless of their opinion.

A negative confirmation can be opposed to a positive confirmation.

Key points to remember

  • Negative Confirmation is a request that should only be answered if there are outstanding issues or concerns that need to be resolved.
  • If there is no problem, no response is sent and the absence of this response serves as a negative confirmation.
  • Negative confirmation letters are often used in the financial services industry, including accountants wishing to verify a client’s financial information.
  • Negative confirmations, as opposed to positive confirmations, help reduce the number of incoming matches, increase efficiency, and reduce waste.

Understanding negative confirmations

Negative confirmations are often used by listeners and involve a document sent to a sample of a company’s customers, asking them to respond only if they see any discrepancy between their books and the account registered on the financial state of the audited company. Negative confirmation is typically used when a company’s accounting controls historically have very few errors and are therefore considered strong. The company is asked to double-check the numbers and confirm only if there is a difference.

Sending a negative confirmation as opposed to a positive confirmation, which requires a response, can save time that would be spent tracking responses and following up on recipients who don’t respond. Negative confirmation is just a way for an accountant to ensure that both companies are reporting the same numbers.

Examples of negative confirmations

Negative confirmations have many applications that include both accountants and financial services companies.

Employee pension plans

Negative confirmation letters are often sent with 401(k) planes that have a self-escalation feature. With auto-escalation, the percentage of an employee’s salary contributed each pay period is automatically increased each year.

The intent of this automatically increasing savings rate is to help people save more money for retirement. About a month before the escalation occurs, the archivist sends a negative confirmation or a negative consent letter. The letter informs the participant that the contribution increase will occur unless the participant contacts the 401(k) recorder and waives the increase to maintain their current contribution rate.

Revenue recognition

Negative demand can also be used to count sales for a car manufacturer. According to the books, the automaker sold 200 cars to the dealership for a total of $6 million in revenue. The negative confirmation letter would state that if the $6 million figure was correct, there is no need to answer. However, if the amount of revenue was only $5 million, the manufacturer would have to notify the accountant of the discrepancy in the dealer’s books.

Negative confirmations are a professional way of saying “don’t reply to me unless there is a problem”.