Bank Audit Requests

The Financial Reporting Council (FRC) has been looking at how best to rationalise some of the audit guidelines in place, by better integrating the guidance into the auditing standards themselves. As part of this, it announced on 14 July that it would be replacing Practice Note 16 with additional application material in ISA (UK) 330 – The Auditor’s Responses to Assessed Risks and ISA (UK) 505 – External Confirmations

The proposed changes, which are minor in nature, would apply to the audit of financial periods beginning on or after 15 December 2017. They do not change the requirements for auditors, but they are intended to reduce the amount of guidance in issue.

The revised guidance in ISA (UK) 330 applies to the audit of financial periods beginning on or after 15 December 2017 and reads:

A50. The auditor may determine that external confirmation procedures performed for one purpose provide an opportunity to obtain audit evidence about other matters. For example, confirmation requests for bank balances often include requests for information relevant to other financial statement assertions. Such considerations may influence the auditor’s decision about whether to perform external confirmation procedures.

In the UK, depending on the auditor’s risk assessment, the auditor considers whether confirmation is needed in relation to additional information such as trade finance transactions and balances or information about guarantees and other third party securities, in addition to the confirmation of balances and other banking arrangements usually provided in such a request.

A51. Factors that may assist the auditor in determining whether external confirmation procedures are to be performed as substantive audit procedures include:

  • The confirming party’s knowledge of the subject matter – responses may be more reliable if provided by a person at the confirming party who has the requisite knowledge about the information being confirmed.
  • The ability or willingness of the intended confirming party to respond – for example, the confirming party:
    • May not accept responsibility for responding to a confirmation request;
    • May consider responding too costly or time consuming;
    • May have concerns about the potential legal liability resulting from responding; o May account for transactions in different currencies; or
    • May operate in an environment where responding to confirmation requests is not a significant aspect of day-to-day operations.
  • In such situations, confirming parties may not respond, may respond in a casual manner or may attempt to restrict the reliance placed on the response.
  • The objectivity of the intended confirming party – if the confirming party is a related party of the entity, responses to confirmation requests may be less reliable.

The underlying processes remain the same, and auditors can utilise the forms first prepared under PN16 or the service.