ICAI and Public Sector Banks to set up Common Platform for Balance Confirmations
Statutory auditors may be relieved to learn that a new mechanism, in the shape of a common balance confirmation site, is now in place to give “external confirmation of balances” to help in the audit of financial statements.
Over the years, auditors have relied on “external confirmations” to get balance confirmations from various parties, including banks, for accounts receivables, accounts payables, bank balances, loans, investments, or inventory held by third parties, and so on. Simply put, external confirmations are audit evidence collected as a direct written answer to the auditor from a third party (the confirming party), either in paper form or by electronic or other medium.
There is no common procedure or format for receiving balance confirmation from banks, hence the need for a mechanism was felt. As a result, auditors are putting themselves at risk if they utilise partial confirmation as audit evidence. This has resulted in frauds, most notably the Satyam Computers corporate scandal in 2009, in which bank balance confirmation was a critical audit mistake that led to the total fraud. Ramalinga Raju, Satyam’s founder and chairman, had falsified the company’s financial statements to exaggerate profits and assets.
To avoid similar controversies and to streamline the process, the Indian Banks’ Association (IBA) and the Institute of Chartered Accountants of India (ICAI) would jointly control the planned shared platform for balance confirmation. According to insiders, it would initially cover just public sector banks but will subsequently be expanded to include private sector banks and financial organisations as well.
The platform’s development and maintenance will be handled by PSB Alliance Pvt. Ltd. (PSB Alliance), which will collaborate with the Institute for Development and Research in Banking Technology (IDRBT).
“This initiative has been approved by our Council. This step towards establishing a standard platform for balance confirmation is significant. The Reserve Bank of India has approved it. It is yet another significant step in the direction of Digital India,” said Aniket Sunil Talati, President of the ICAI.
The PSB Alliance is a joint venture umbrella corporation that was founded and is solely owned by all 12 public sector banks. It is a subsidiary of India’s bigger public sector bank.
Audit evidence in the form of “external confirmations” obtained directly from confirming parties by the auditor is seen as more credible than evidence developed internally by the company.
Common Portal’s Benefit
The common portal will be legally binding. The proposed system will have a regulatory structure comprised of ICAI, IBA, PSB Alliance Pvt. Ltd., and IDRBT. Balance confirmations will be handled by banks.
In addition, auditors will not be charged for getting balance confirmations. Other advantages for auditors include the portal being very efficient, more reliable, and resulting in suitable authentication.
Once the portal is operational, auditors will no longer be concerned about the risks connected with external verification of account balances.
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