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External Confirmation through Third Party Vendors

External confirmation is the process done while an audit is conducted of a company. External Confirmation is done in order to obtain account balance confirmation from various parties including banks.

It is observed by the Institute of Chartered Accountants of India (ICAI) that auditors are facing many difficulties in getting external confirmation from banks. Also, it has been noticed that many banks are into third-party vendor’s confirmation which is not an authentic process. As using third-party vendor is a pretty sure risk-involving and not an appropriate thing to be done as per the law. There arises confusion in the mind of law maker as to who shall be responsible if anything goes wrong. And therefore, it is not clear in case there is failure of IT controls at the end of third-party vendors that impacts the integrity of the information.

Presently, there is no law or rule that deals with the confirmation in the conducting of audit. And as we can see, all the risk and the burden of the liability stands clear in the hands of auditors itself as the auditors are the ones using the confirmation from such third-party vendors.

By looking at the above update released by the Institute of the Chartered Accountants of India, it is advised by the ICAI to all the auditors to seek direct confirmation from concerned banks in order to avoid any kind of fraud to happen.

To check the original document, here mentioned :-

Auditing and Assurance Standards Board &
Professional Development Committee
The Institute of Chartered Accountants of India
7th September, 2022

External Confirmation through Third Party Vendors

External confirmations have been an important and integral part of audit procedure in order to obtain sufficient appropriate audit evidence in line with requirement prescribed in various Standards on Auditing (SAs). Over the years, auditors have been using external confirmations to obtain account balances confirmation from various parties (confirming parties) including banks.

However, it has come to the notice of the Institute of Chartered Accountants of India (ICAI) that, in recent years, auditors are facing various difficulties in obtaining external confirmations from banks. One of the major concern in this regard is that some banks are using services of third-party vendors to provide confirmations on their behalf to auditors. Use of third-party vendors leads to the risk that the information provided by third-party vendors may not be authentic and complete. Further, it is not clear as to who will be responsible in case there is failure of IT controls at the end of third-party vendors which may impact the integrity of information provided.

These factors raise a question as to who will be held responsible for authenticity and completeness of the information provided to auditors, the concerned bank or such third-party vendors. Presently, there is no legal framework/guidelines to deal with these aspects. Thus, auditors are exposed to serious risk, in case they use the confirmation from such third-party vendors as audit evidence.

Keeping in view the above, the auditors are advised to seek direct confirmation from concerned banks.

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