Negative Confirmation in Australian Finance: What Investors Need to Know (2025)

When it comes to financial controls and risk management, most Australians think of big topics like insurance, diversification, or even cybersecurity. But lurking behind the scenes in many audits and compliance processes is a quieter tool: negative confirmation. It may not make headlines, but understanding how it works can help investors, business owners, and anyone involved in financial oversight make sharper decisions and spot potential gaps in controls.

What is Negative Confirmation?

Negative confirmation is a verification process used in auditing and financial reviews. Instead of asking a third party to actively confirm a statement or balance, negative confirmation requests a response only if the information provided is incorrect. If no reply is received, it’s assumed the information is correct. This is the opposite of positive confirmation, which requires a reply regardless of accuracy.

• In practice, negative confirmation is often used when the risk of misstatement is low and there are many similar, small balances to verify.
• For example, an auditor might send negative confirmation letters to a company’s customers, asking them to respond only if their recorded balance is incorrect.

While this sounds efficient, it’s not without its pitfalls—especially as regulatory expectations evolve.

How Negative Confirmation Is Used in Australia (2025 Update)

In 2025, negative confirmation remains a staple in many Australian audit and financial processes. The Australian Auditing Standards (ASA 505) continue to guide how auditors use external confirmations. ASIC’s recent 2024-2025 guidance also highlights the importance of choosing the right confirmation method depending on risk levels and materiality.

Here’s where negative confirmation is showing up most frequently:

• Auditing trade receivables: When companies have hundreds or thousands of small customer accounts, negative confirmation helps verify balances efficiently. Auditors lean on it when internal controls are strong and fraud risk is low.
• Investment funds: Fund managers sometimes use negative confirmation with investors to verify unit holdings and transactions—especially when investor numbers are high and balances are individually immaterial.
• Banking and lending: Lenders may use negative confirmation to verify deposit balances or loan statements, especially as digital channels make positive confirmation more cumbersome for large datasets.

However, regulators have cautioned that over-reliance on negative confirmation can lead to missed errors or fraud. The 2024 ASIC audit inspection report flagged several cases where auditors failed to detect misstatements because they relied too heavily on negative confirmation, especially when recipients were disengaged or systems had weak controls.

Strengths, Limitations, and Real-World Examples

Negative confirmation can save time and costs, but it’s not a silver bullet. Here’s what Australians should consider in 2025:

• Strengths:
  • Efficient for high-volume, low-risk accounts
  • Reduces administrative burden on both sender and recipient
  • Useful when recipients are unlikely to respond unless there’s an issue
• Limitations:
  • No response doesn’t always mean accuracy—recipients may overlook the request or assume it’s unimportant
  • Not suitable for high-risk, high-value, or complex accounts
  • Increasing regulatory scrutiny if used where positive confirmation is warranted

Example: In 2024, an ASX-listed retailer’s audit relied on negative confirmation for 15,000 small customer balances. While this sped up the process, ASIC’s post-audit review found that several incorrect balances slipped through due to non-responses—prompting the auditor to tighten future procedures and blend in more positive confirmations for higher-value accounts.

Should You Care About Negative Confirmation?

If you’re an investor, business owner, or even just a diligent saver, negative confirmation could touch your finances in subtle ways. For instance, you might receive a statement from your super fund or lender stating, “If this information is incorrect, please notify us.” That’s negative confirmation in action.

Here’s how you can stay on top of it:

• Always review statements and requests—even if a response isn’t required. Your silence could be interpreted as agreement.
• Ask your accountant or adviser how confirmations are handled in your audits or financial reviews.
• Keep up with regulatory trends: ASIC and the Australian Auditing and Assurance Standards Board (AUASB) are tightening expectations for when negative confirmation is appropriate.