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You are watching: Standard form to confirm account balance information with financial institutions
The new confirmation create for financial institutions. (Auditing)by Sauter, Douglas P.Abstract-One of the a lot of prevalent measures in bank audits is the confirmation of the institutions" cash balances. The form for confirming cash balances and soliciting various other financial information from financial institutions has been revised. The old form had last been revised in 1966, prior to the development of the brand-new services available by financial establishments, consisting of international money transactions, and loan- and also interest-price swaps. The significant adjust in the develop is the elimination of items extending arrangements and also transactions other than loan and deposit balances. The brand-new standard form need to be offered by auditors for engagements on or after 31 Mar 91. The revised conventional create, jointly approved by the American BankersAssociation (ABA), the AICPA, and also the Bank Administration Institute(BAI), is component of a revised approach to the confirmation of accountbalances and also various other information with financial establishments. The AICPA"sAuditing Standards Division has actually issued a Notice to Practitionersexplaining the transforms to the standard create and also confirmation procedure.The Notice, which showed up in the October 1990 The CPA Letter, willacagency all brand-new orders of the typical create from the AICPA OrderDepartment. Why Change the Existing Form? In 1966, the AICPA revised the traditional develop to provide for theinclusion of information on security agreements under the UniformCommercial Code. Because then, the deregulation of and increasedcompetition among financial institutions has brought about the providing of awide array of services by financial institutions. These servicesencompass foreign money transactions, interest rate and also loan swaps, andother innovative financial tools and also transactions. Some of thesesolutions, such as off-balance sheet financing arrangements, have madethe auditor"s task even more hard. Auditors seeking confirmation ofparticular of these matters with financial establishments have actually uncovered that theconventional create was not designed to attend to many kind of forms of arrangements ortransactions. The revisions are designed to boost the top quality of auditevidence acquired from financial organizations and the performance withwhich that proof is acquired. Another reason for revising the standard create relates to the processwhereby financial organizations complete the create. Usually, financialinstitution employees that finish the develop usage indevelopment systemsthat only suggest the dollar amount of loan and also deposit balances. Theseunits may not generate information about various other arrangements that thecustomer may have via the financial institution. Also, the employeecompleting the form is commonly unconscious of other financial solutions thatthe financial school provides to the customer. Hence, financialinstitutions have actually discovered that completion of the old conventional create,especially inquiries 3 with 5, has actually come to be difficult. What are the Changes? The biggest adjust to the typical confirmation develop has been toget rid of the items addressing transactions and arrangements various other thandeposit and loan balances. Questions 3 via 5 on the old form askedfor information about contingent liabilities, letters of crmodify,collateral, and also defense agreements. The new form just requestsinformation around deposit and loan balances. Hence, the new create hasbeen retitled "Standard Form to Confirm Account Balance Information withFinancial Institutions." The brand-new form is designed to substantiate indevelopment that is presentedon the confirmation request. In practice, this is regularly referred to as"corroboration." The new develop is not designed to find informationthat does not show up on the confirmation request. The Notice toPractitioners claims that the auditor "need to be conscious that solereliance on the typical create to accomplish the completeness assertion isunwarranted. " SAS 31, " Evidential Matter " (AU 326), which describesthe financial statement assertions made by administration, describes that thecompleteness assertion encounters "whether all transactions and accountsthat need to be presented in the financial statements are so consisted of."In short, considering that the brand-new typical develop does not research the financialschool to administer any type of information other than that related to loansand deposits, auditors should not mean financial organizations todiscshed indevelopment around other transactions or arrangements on thestandard develop. How Will This Change Practice? If, based upon the assessment of inherent and control hazard, the auditorbelieves that tbelow is a far-ranging threat that material accounts,agreements, or transactions of which the auditor is unconscious might exist,the auditor need to explicitly research such information from ancorrect financial school official. If the auditor determines that it is appropriate to confirminformation other than deposit and also loan balances, he or she have to senda sepaprice letter, signed by the client, to a financial institutionofficial who is responsible for the financial institution"s relationshipthrough the client. Such a research is similar to a repursuit for otherinformation that was not addressed on the old conventional form. Forexample, auditors seeking cut-off financial institution statements, indevelopment aboutsecurities hosted in safekeeping, or lists of authorized examine signershave always had to request such indevelopment in a letter sepaprice fromthe standard develop. Directing the repursuit for indevelopment around othertransactions or arrangements to the appropriate financial institutionmain should improve the high quality of the evidence the auditor obtainsgiven that the main will be in a much better position to respond to questionsabout various other arrangements with the customer than a financial institutionemployee functioning with a balance only" database. To carry out the auditorthrough guidance on preparing letters to confirm various other indevelopment, theAICPA has ready 3 illustrative letters. The letters are appendedto the Notice to Practitioners that acsuppliers all brand-new orders of therevised conventional develop. The first illustrative letter, presented inFigure 2 omitted, is designed to confirm contingent liabilities. Thesecond and 3rd illustrative letters (not redeveloped here) might be usedto confirm compensating balances and also lines of credit, respectively.However, the letters are designed to be used as models for adaptation inmaking letters confirming other kinds of information such asautomatic investment services, futures and also forward contracts, andrepurchase transactions. Of course, if the client has just one financialcollege official responsible for the financial institution"spartnership with the client and that main is knowledgeable aboutthe arrangements via the client, the letters may be merged right into asingle letter requesting the essential information. When Should the New Form Be Used? Auditors should use the new traditional form and also illustrative letters forconfirmations mailed on or after March 31, 1991. To stop potentialconfusion, auditors should not use the new standard form prior to March31, 1991, nor use the old develop after that date. Copies of the new form and accompanying illustrative letters can bederived from the AICPA Order Department at 1-800-334-6961 (In NYS, call1-800-248-0445). Mr. Sauter is an employee of the American Institute of CPAs and also hisviews, as expressed in the post, execute not necessarily reflect the viewsof the AICPA.
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