Frequent problems with bank audit letters
The current procedures for auditors to request bank confirmation letters have been in place for a number of years. However, a number of frequent problems have been identified that affect the smooth running of the process.
The procedures were agreed between the bodies representing the UK auditing profession and the British Bankers Association (BBA) and are included in Practice Note (PN)16 (Revised) Bank reports for audit purposes in the United Kingdom.
In particular when requesting bank confirmations, auditors need to:
- provide the customer’s main sort code and main account number for each legal entity on their report request (that is, subsidiaries as well as the holding company where a single letter is sent for all companies in a group);
- provide a facility account number for trade finance or derivative and commodity trading if such additional information is required;
- address the bank letter to the specific processing centre identified by each bank and not to the client’s relationship manager. The addresses of centres dealing with bank report requests for each bank are published on the BBA website;
- check that the authorities disclosing information to the auditors provided to the banks are valid. A new authority is not required each time a request is sent, however an updated authority is needed for new group entities and when there are changes affecting the auditor such as reorganisation as an LLP or merger with another practice.
The request for a bank report needs to be issued on the auditor’s own headed paper using one of the three templates included in PN 16. It is essential for the auditor to choose the most appropriate template to use in view of the specific circumstances of the engagement:
- the standard request template should be used for all requests, except exceptional circumstances in which one of the other two templates would be more appropriate. The standard request also includes an option for additional information in respect of trade finance and derivative and commodity trading;
- the fast-track request template should be used only in exceptional cases, for example when an entity has to meet a reporting deadline within a month or less of the accounting year end (that would be the case for a listed entity). A fast-track request must state in the appropriate box the reasons as to why the auditor needs the information within less than a month and the date by which the reply is needed;
- the incomplete information request template should be used when the auditor is unable to provide the main account sort code and number for all the entities in a group or sufficient references to identify additional information required. Circumstances where an incomplete information request may be appropriate are relatively rare and might include a break down in controls of the client and subsequent lack of information, suspicion by the auditor that the entity has not provided full information in view of previous occurrences or when fraud or improper behaviour is suspected and where there is a history of poor record keeping. Auditors need to be aware that banks cannot give information in respect of legal entities that are not covered by an existing authority to disclose. An incomplete information request will also take longer in view of the more extensive searches required and might result in an additional fee.
Where practicable the auditor should send the bank report request early enough to reach the bank one month in advance of the reporting period end date. However, it is advisable to allow more time for busy periods like December and March year ends. For standard requests the banks will endeavour to reply with a calendar month of the period end date.
Although the outlined procedures have been in place for almost four years (they were introduced for periods ending on or after 26 December 2008), frequent problems that hinder the correct flow of the process have been identified in the regular meetings that ACCA and other professional bodies hold with BBA representatives for the purpose of monitoring compliance with PN 16.
In some circumstances problems may have been generated by the approach taken by some banks to auditor’s requests. ACCA would like to obtain comments from its members about their experience of the application of the current procedures, including regular or isolated problems encountered with specific banks, so that appropriate feedback could be given at future meetings with the BBA to seek remedy and improve the process. Comments may be sent to firstname.lastname@example.org
BBA highlights a number of recurring issues that it receives from its members regarding inappropriate auditors’ behaviour that if rectified would improve the smooth running of bank confirmations. They are:
- additional information requests: a recurring problem is that of confirmation requests for which the boxes about additional information about trade finance or derivative and commodity trading have not been ticked where such information is actually needed. Failure to do so in the original request slows down the process. Auditors should therefore check carefully before sending their request whether the additional information boxes should be ticked;
- multiple requests: it is acceptable for auditors to send multiple bank letter requests by post; however banks have pointed out that, when faxing requests, auditors should ensure that a separate fax is sent for each letter. The reason for this is that faxes are received and stored electronically by banks and where multiple requests are received in a single fax, the additional time required to separate the requests for individual entities or groups is likely to delay reply. There is no issue with having multiple entities on the same letter (i.e. for members of a group); a problem may arise where different, unrelated requests are sent on the same fax
- use of fast-track requests: it has been reported that there has been an increase in the use of fast-track requests. In some cases it seems that this is a policy choice by some auditors to try and accelerate responses, rather than a genuine request in accordance with the guidance in PN 16. Apparently different requests sent by the same auditors may state the same reason for fast-track requests, indicating possible misuse of the service. The fact that an auditor has delayed the submission of bank confirmation requests and that there is little time before the accounts filing deadline is not an acceptable reason for a fast-track request. Occasionally the reasons for a fast-track request, which are required by the template, are not given at all. Fast-track requests should be used for entities subject to tight deadlines, like listed companies; however it would be acceptable to submit a fast-track request when an auditor has been appointed after the end of the reporting period and near the accounts filing deadline
- copies of cheques: the request for copies of cheques is not part of the bank audit confirmations process and should take place via a separate request addressed to the designated teams of each bank. The BBA will publish a contact list for copies of cheques requests on its website.