Banking on IT
The role of bank confirmations in audit is changing. So are methods of submitting and responding to requests. Katharine Bagshaw explores how.
Auditors have requested bank confirmations as a matter of course for decades, despite the fact that there is no explicit requirement in auditing standards for them to do so. Confirmations are deemed to constitute high quality audit evidence because they are obtained directly from an independent source, outside the organisation.
Although obtaining complete and accurate bank confirmations is a perennial problem, compliance with Practice Note 16 (PN 16) the Financial Reporting Council Practice Note 16 (PN 16) Revised (2011) Bank Reports for Audit Purposes in the UK (tinyurl.com/FRCIPnotes) remains widespread. The Audit & Assurance Faculty has sought over many years, with varying degrees of success, to resolve the technical issues in this area through periodic meetings with representatives of banks and the British Bankers Association (BBA). This dialogue has arisen partly because of the ways in which technology has changed the methods used by banks and auditors to deal with confirmations.
Most banks moved away from dealing with confirmations at branches and consolidated the process some time ago. More recently, internet banking has become the norm. Most recently, commercial providers of electronic confirmations, already well-established in the USA, have entered the UK market. Electronic bank confirmations are now offered by some banks through intermediaries such as BBA Confirmations (see page 5 and tinyurl.com/BBAconf). It remains to be seen whether this new technology for applying PN 16 becomes the norm, whether banks continue to offer hard copy alongside electronic confirmations, the quantum of costs, how they are charged to auditors and audit clients, and how that technology will affect the wider audit approach. It seems likely that auditors dealing with electronic confirmations will need to make operational changes to the way they make requests and that there will be cost implications.
This is an extract from an article in the October 2015 edition of Audit & Beyond, the magazine of the Audit and Assurance Faculty.
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