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April 11, 2014

New electronic audit confirmation process

B4The Independent Regulatory Board for Auditors (IRBA) recently issued the new South African Audit Practice Statement 6 – External Confirmations from Financial Institutions. The new SAAPS 6 introduces a new format for auditors to follow when performing external audit confirmations. The new statement also explains the new method for an auditor to request and obtain an electronic external confirmation.

In the light of this new SAAPS 6 and considering current challenges faced by auditors and banks with the manual confirmation process, the major SA South African banks have indicated that they would like to start to move away from the current paper-based process towards an electronic process called Confirmation.com.  A number of banks have already started accepting electronic confirmations and have communicated that as from 1 April 2014 they will no longer accept manual paper-based confirmations, but only electronic confirmations. Of the four major banks, Standard Bank and FNB have already switched to the new system while Nedbank and ABSA are in the process of doing so.

IRBA has expressed the view that electronic confirmation provides greater assurance for this interactive process, provides more reliable audit evidence, reduces auditors’ risk of fraud, reduces audit clients’ risk of fraud, and is in line with international best audit practices. There are other countries in the world that have enjoyed the proven benefits and advantages of this type of approach for several years already.

What is Confirmation.com? 

Confirmation.com is a single, secure, web-based platform that allows authenticated audit firms to effectively manage and control the audit confirmation process, both internally and directly with authenticated financial institutions. This streamlines the process, improves efficiencies and reduces fraud risk for both auditors and audit clients.

Why has the audit and banking industry adopted this electronic confirmation process? 

Currently, auditors, banks and their shared clients are faced with a number of challenges when it comes to the manual paper-based process.

Among the main challenges are:

  1. Fraud Risk – The risk of an employee intentionally providing false information to an auditor as well as the risk of highly sensitive client information floating about on paper requests, in an unsecure environment, between unauthenticated individuals and entities with a limited audit trail. 
  2. Management and Efficiency – It is an administrative effort for audit clients, audit firms and financial institutions to effectively manage and have full control over paper requests, with the current segmented process flow. 

How does Confirmation.com benefit both auditors and audit clients? 

  • It provides sound governance accompanied by a sound process and internationally proven systems and technology.
  • It reduces the risk of fraud for both auditor and client, with security over confidential client information, as it is transferred between validated entities through a secure system.
  • It provides full control over the confirmation process, from beginning to end.
  • It provides a full audit trail for each confirmation.
  • It provides an improved and easier workflow with a direct channel of communication between auditor and bank.
  • Considering audit deadlines, it provides increased efficiencies and time saving for auditors and clients.
  • It is a paperless process. 

How will an audit client now provide electronic authorisation to allow the auditors to send electronic confirmations to a bank? 

  1. We as auditors will set up the client profile and the relevant client-authorised bank signatories for the profile, within Confirmation.com.
  2. A system-generated email (system.administrator@confirmation.com) will be sent to the client-authorised bank signatory, requesting authorisation. (It is recommended that audit clients add this email address to their safe sender list, to prevent any spam/firewall filters.)
  3. Subsequently, the client-authorised bank signatory must click on the acceptance link to give the auditor electronic authorisation so that the auditor can initiate the request with the bank.   

Cost implications of Confirmation.com

  • Confirmation.com charges a cost per individual transaction, i.e. per confirmation.
  • This cost per transaction is R213 per form, per bank, per client audit date.
  • This charge is, however, capped at five forms per bank, per client audit date

(i.e. if you send 10 forms to one bank for a client audit date, you will only be charged for the first five forms at R213 per form and any forms over and above the first five will be charged at R0.)

  • These charges will be billed to clients in addition to the normal audit fee. 

In an attempt to save our clients the additional costs brought about by this new, compulsory process, we have attempted to request all confirmations for year-ends up to February 2014 on the old manual system instead of through Confirmation.com.  However, from 1 April we will be obliged to use the new process for all new requests for year-ends of March 2014 onwards.

We would like to urge our clients to respond timeously to all requests from our office for the completion of the necessary documents pertaining to this matter. If you wish to discuss this in more detail your are welcome to contact your  responsible director or Christa Swart  at christas@asl.co.za  or  021 840 1600.

This article is a general information sheet and should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice.