Introduction:

Auditors encounter challenges in obtaining timely and complete confirmations from banks, exposing them to potential risks. The absence of a standardised process or format for obtaining balance confirmations has further exacerbated these issues. Direct balance confirmation is a key audit evidence which is sufficient, appropriate and can be relied upon by the auditors in their responsibility to form an opinion on the financial position of an entity. This audit exercise can be time consuming and cumbersome. Technology plays an important part in gathering audit evidence.

In any balance sheet, bank balance as well as outstanding loan balances are important figures which the auditor needs to review. Bank confirmations (both current account balances as well as loan balances) are vital for auditors to complete their obligations under various reporting requirements.

Currently auditors follow different practices, formats, procedures for obtaining confirmations from the banks. Auditors often find it difficult to get information from banks so they have to rely on third parties to provide confirmation. This raises questions on the credibility of information.

To tackle this problem, the proposed portal will provide a comprehensive solution, initially covering public-sector banks.

The Implementation :

To streamline the auditing process, the ICAI in association with the Indian Banks Association (IBA) has approved a plan to develop and jointly control a common balance confirmation portal which promises high efficiency and reliability. The IBA has engaged with the RBI’s Institute for Development and Research in Banking Technology (IDRBT) and National E-Governance Services Limited to ensure the platform’s efficient and secure implementation. Further, the portal’s development and maintenance will be managed by PSB Alliance Pvt. Ltd., which will collaborate with IDRBT.

The proposed system which is expected to go live in three months, will have a regulatory structure comprised of ICAI, IBA, PSB Alliance Pvt. Ltd., and IDRBT. A prominent aspect of this endeavour is that participating banks will assume the responsibility of balance confirmations provided ensuring greater accuracy.

Initially it will cover just public sector banks but subsequently, private sector banks and financial organisations will also join. Auditors can obtain balance confirmations from this portal at zero cost. From corporates’ point of view, the portal would reduce the time required for coordination and ensure banks provide confirmations to the auditors on a timely basis. Moreover, as a value-added suggestion, auditors also expect coverage of off-balance sheet items like bank guarantees, bills discounted, fixed deposit under lien which can be of great help.

The Utility :

The significance of this initiative cannot be overstated, particularly in light of cases such as Satyam Computer Service, which have raised questions about auditors' roles. In the past, auditors have faced challenges related to obtaining timely confirmations from banks, often resulting in delayed or insufficient information. These confirmations are vital for auditors to report on various critical matters, including assets, quarterly returns, loan defaults, and instances of wilful default.

To alleviate these concerns, the proposed common platform will ensure auditors can obtain authenticated balance confirmations directly from banks. By removing the need for auditors to visit each bank branch individually, the portal will significantly reduce costs and streamline the auditing process. Notably, auditors will no longer be required to rely on third-party vendors, as the authenticated authority provided by the proposed portal will suffice.

Here are the points which are covered

1. Synergy for Success: The Institute of Chartered Accountants of India (ICAI) and the Indian Banks' Association (IBA) have teamed up to boost audit quality in the financial sector. This strategic partnership is expected to foster improved financial reporting and governance practices.
   
   2. Elevating Accountability: The joint effort aims to enhance transparency, accountability, and credibility in financial statements. With ICAI's expertise in accounting and auditing and IBA's insights into banking operations, this collaboration is set to reinforce the standards of audit quality across the board.
   
   3. Benchmark for Best Practices: By pooling resources and knowledge, the collaboration seeks to establish a benchmark for best audit practices. This initiative holds the potential to raise the bar for audit quality and contribute to the overall strengthening of the financial ecosystem.
   
   4. Addressing Evolving Challenges: In an ever-changing financial landscape, the partnership will address emerging challenges in the audit profession. The combined efforts of ICAI and IBA will play a pivotal role in adapting audit methodologies to meet the evolving needs of the industry.
   
   5. Positive Implications: The collaborative approach is likely to result in improved risk management, better compliance, and greater trust in financial reporting. Investors, regulators, and stakeholders stand to benefit from more accurate and reliable information, fostering a healthier financial environment. Statutory auditors may have cause for cheer as a new mechanism in the form of a common balance confirmation portal is now being put in place to provide “external confirmation of balances” for aiding the audit of financial statements.

Over the years, auditors have been using “external confirmations” to obtain balance confirmations in respect of accounts receivables, accounts payables, bank balances, loans, investments or inventories held by third parties, etc. from various parties, including banks. Put simply, external confirmations mean audit evidence obtained as a direct written response to the auditor from a third party (the confirming party), in paper form, or by electronic or other medium.

Conclusion:

To prevent such scandals and also to streamline the process, the proposed common platform for balance confirmation will be jointly owned by the Indian Banks’ Association (IBA) and the Institute of Chartered Accountants of India (ICAI). It will initially cover only public sector banks but be later extended so as to cover private sector banks and financial institutions as well.

Authors:

Umesh Vishwakarma

Manager | Email: umesh.vishwakarma@masd.co.in | LinkedIn

Ganesh Sakpal

Associate Consultant | Email: ganesh.sakpal@masd.co.in | LinkedIn