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Would you like your bank to write direct to your auditors to tell them the truth about your business?

Although it can sound dramatic, this is precisely what happens on most audits. The bank’s report is a routine confirmation of bank balances and associated information at the financial reporting date. Although routine, the communication is important and there is scope for it to go wrong, giving rise to queries over its timeliness or even the accuracy of the information.

This is why ACCA and the other accountancy bodies with auditor members have worked over the years with the British Bankers’ Association (BBA) and the Auditing Practice Board to develop agreed UK protocols for the process.
A recent change, which this article explains, may mean that your company is asked for additional information: in a group, the main account number and sort code for each legal entity and, in the case of some banks, a new mandate to disclose information.

The updating of the protocol was driven by two strategic changes: reorganisation of services at many banks, such that auditors’ requests for information now mostly dealt with at central or regional service centres rather than branches; and the increasing emphasis on risk assessment in modern auditing, which changes the nature of the request for confirmation.

 It is important to realise that, for the banks, responding to an auditor’s request for information has never been easy. Although the auditor would use the standardised forms for such a request, the bank might only be told the name of the company concerned and be asked to provide confirmation of the balances on all the company bank accounts and, for a holding company, those of its subsidiaries. In addition, the bank was expected to confirm information such as facilities in place and any securities held. Banks’ systems were not designed to link together all these matters. This made the assembly of the information both lengthy and prone to errors of completeness; an aspect with which the auditor is particularly concerned. The concept of the ‘hidden account’ has enlivened the training of many young auditors. Although, exceptionally, an ‘incomplete information request’ can still be made, it does not benefit from the increased efficiency of the new protocol.

The auditor now selects the type of request and whether additional information is needed, such as on trade finance transactions and balances. Requests can be standard or, exceptionally, fast track. For financial statements prepared to December 2008 and thereafter, the new protocol is mandatory. Before then, auditors have an option to use the new or old approach.

The BBA website has a section giving, for each bank, the right address for the request. To allow banks to plan their staffing needs, particularly around the December and March peaks when many company year ends occur, requests have to be sent in at least a month in advance of the company year end.

The bank will respond to each request initially with an acknowledgement to confirm receipt and provide an indication of when it expects to respond fully, which will normally be within one month. The initial response may be made by e-mail and the protocol makes due allowance for the fact that e-mail is not secure by ensuring that the customer is not identified by name. As electronic systems mature, we can look forward to fully secure paperless bank reports and a further revision of this protocol. 

Detailed guidance on the new protocol, including working templates, is available on BBA's and the APB's website; the latter in the form of Practice Note 16 Bank Reports for Audits in the United Kingdom.

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