Open Banking in Audit: A new bank confirmation process
A New Bank Confirmation Process
In a recent article Open Banking in Audit: Bank Confirmations we considered whether Open Banking is the next step for Auditors and Accountants are progressing changes to their working practices to keep their work relevant.
Having considered some of the fundamentals of bank confirmations, let’s now look at process and approaches available.
To obtain bank confirmations there are traditionally two approaches:
· The auditor wrote directly to the bank, via letter or email.
· The auditor leveraged a platform to communicate with the bank.
These were the necessary approaches as the only way for an auditor to gain access to their client’s confidential banking information – provided the client granted the appropriate disclosure authority.
Open Banking is now changing some of the fundamental characteristics which dictated this approach. Open Banking means banks are more readily sharing not just balance information, but transactional data regarding their clients. And this simplifies the process for organizations to authorize access to their advisors or third-party applications.
The Open Banking process is highly streamlined compared to manual letters, emails, or confirmation platforms. It places a much lower burden on the auditor, given the client authorization is embedded into the process and the banking information is available instantaneously.
More significantly there is a considerable increase in the quality of the information received. The risk of human error across the process is significantly reduced, such as a client error in the listing of bank accounts, the auditor not defining the client’s name or account details 100% correctly, or the bank making a keying error or confirming balances at the incorrect date.
Open Banking allows the auditor to receive the current balance and all transactions within the prior 2 years, in effect confirming the balance held at any date during that period.
Is Open Banking an external confirmation?
External confirmations are “obtained as a direct written response to the auditor from a third party (the confirming party), in paper form, or by electronic or other medium”. This includes the auditor’s direct access to information held by a third party.
Open Banking represents the provision of evidence from the bank to the auditor. The auditor maintains control over the confirmation process and meet the additional external confirmation criteria. Therefore, Open Banking provides an external confirmation.
Prudently, Open Banking provides an account-based confirmation with some completeness evidence, comparable to a consolidated confirmation with qualifying statements.