Public sector banks, ICAI to set up common platform for balance confirmations
Chartered auditors may have reason to rejoice that a new mechanism is now being put in place in the form of the Common Balance Confirmation Gateway to provide ‘external confirmation of balances’ to assist in the audit of financial statements.
Over the years, auditors have been using External Confirmations to obtain balance confirmations in respect of receivables, payables, bank balances, loans, investments or inventories held by third parties, etc. from various parties, including banks. Simply put, external assurance means audit evidence obtained as a direct written response to the auditor from a third party (the confirming party), in paper form, or via electronic or any other means.
The need for a mechanism has been felt because there is no standardized process or formula for obtaining balance confirmation from banks. Thus, auditors run the risk if they use an incomplete assertion as audit evidence. There have been frauds because of this, most notably the Satyam Computers scandal in 2009, where bank balance confirmation was a major audit failure that contributed to the overall fraud. Satyam’s founder and chairman, Ramalinga Raju, manipulated the company’s financial statements to inflate profits and assets.
To prevent such scandals and also to simplify the process, the proposed joint balance confirmation platform will be jointly owned by Indian Banking Association (IBA) and the Institute of Chartered Accountants of India (ICAI). The sources said that it will initially cover public sector banks only but will be extended later to include private sector banks and financial institutions as well.
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The development and maintenance of the platform has been entrusted to PSB Alliance Pvt. Ltd. (PSB Alliance), which in turn will work with the Institute for Development and Research in Banking Technology (IDRBT).
“Our council approved this initiative. This step of setting up a common platform for balance confirmation is a very big step. Blessings of the Reserve Bank of India. It is another big step under Digital India, said Aniket Sunil Talati, President, ICAI Business line.
The PSB Alliance is a joint venture umbrella entity created and exclusively owned by all twelve public sector banks. It is part of the largest public sector bank established in India.
Audit evidence in the form of “external assertions” that the auditor receives directly from the confirming parties is considered more reliable than evidence that the entity produces internally.
Common portal benefits
The common portal will have regulatory power. Under the proposed system, there will be an organizational structure comprising ICAI, IBA and PSB Alliance Pvt. Ltd., and IDRBT. Banks are responsible for balance confirmations.
Also, validators will not be charged for balance confirmations. Other benefits for auditors include that the portal is more efficient, has higher reliability, and leads to proper authentication.
Once the portal is up and running, you don’t have to worry about the risks associated with external confirmations of account balances.