The Auditing and Assurance Standards Board & Professional Development Committee of the ICAI has issued an announcement regarding the various difficulties faced by the auditors during the audit in obtaining the external confirmations from banks.
As these external confirmations have been an important part of audit procedure to obtain sufficient
and appropriate audit evidence. Auditors use external confirmations to obtain account balances
confirmation from various parties (confirming parties) including banks.
However, it is noticed that the auditors are not able to obtain external confirmations from banks
easily. One of the major reason is that some banks are using services of third-party vendors to
provide confirmations on their behalf to auditors. These third-party vendors leads to the risk that the
information provided by third-party vendors may not be authentic and complete. Further, it is not
clear as to who will be responsible in case there is failure of IT controls at the end of third-party
vendors which may impact the integrity of information provided.
These factors raise a question as to who will be held responsible for authenticity and completeness
of information provided to auditors, the concerned bank or such third-party vendors. Presently, there
is no legal framework/guidelines to deal with these aspects. Thus, auditors are exposed to serious
risk, in case they use the confirmation from such third-party vendors as audit evidence.
As per report on Audit quality review by ICAI, Number of Observations on Audit Evidence has
decreased significantly in last three years. There were 40 observations in FY 2019-20 which reduced
to 25 observations in FY 2020-21 and further reduced to 6 observations in FY 2021-22. This was on
account of External Confirmations and other sufficient and appropriate evidences obtained by the
auditors.
Therefore, the auditors are advised to seek direct confirmation from concerned banks.
