1.0 The Issue
1.1 To seek standardisation of auditing practice when approaching banks for information required for audit purposes.
2.1 This release deals with request by auditors to bankers’ of the client for confirmation of balances and providing other information and prescribing a standard letter of request.
2.2 The practice of obtaining independent confirmations or reports from banks is essential for the proper discharge of auditors’ responsibilities. Bank reports assist auditors to verify existence of liabilities and the existence, ownership and proper custody of assets; they also provide other information relevant to the audit of financial statements.
3.0 Technical Committee Recommendation
3.1 The Committee recommends the following standard format for the letter of request to be sent to banks and also the appropriate guidance in this regard to be used by the auditors while verifying the bank balances.
Standard Letter of Request
3.2 The information which is usually required from banks and financial institutions for audit purposes is substantially the same for most audits and can be obtained in a standard letter of request which would facilitate a prompt response from banks and financial institutions. The use of such a letter, designed to cover all normal banking activities and to facilitate extraction of information from banking records should enable prompt response to these requests. It should also enable auditors to make further enquiries from banks if the replies received require a clarification.
3.3 This technical release, therefore, requires auditors to adopt the practice of requesting information from banks and financial institutions in the form of a standard letter as set out in Appendix-I. It also requires that the standard letter of request should be used in accordance with the procedures laid down in paragraph 5 below. Appendix-II to this release sets out explanations of items that are incorporated in, or specifically excluded from, the standard letter. It is stressed that this standard letter is for audit purposes only.
4.0 Authority to Disclose
Banks and financial institutions will require explicit written authority of their customers to disclose information requested by auditors. For the sake of convenience, it is proposed that the authority should be evidenced by the customer’s counter signature on the standard letter of request. In the case of joint accounts, the authority must be given in the standard letter of request by all parties to the account. In the case of security lodged by a third party, its authority for disclosure will also have to be obtained and produced to the bank.
5.1 The following procedures should be adopted by the auditors in connection with the standard letter of request for a bank report:
a) The standard letter as set out in Appendix-I to this release should be sent on each occasion by the auditor on his own letterhead to the Manager of each branch of a bank with which it is known that the client holds an account or has dealt with since the end of the previous accounting period.
b) The client’s authority to permit disclosure should be obtained on the standard letter of request itself before the letter is sent out.
c) The standard letter of request should preferably reach the branch manager on or before the date of the client’s financial year/period end.
d) The dates to be entered on the standard letter are normally the closing dates of:
i) The client’s accounting reference period for which the report is requested; and
ii) the client’s previous accounting reference period for which full bank report was compiled. If, exceptionally, audited financial statements are produced other than for an accounting reference period, alternative dates should be substituted.
e) In reviewing the bank’s reply, it is important for auditors to check that the bank has answered all questions in full.
f) It will be necessary to obtain confirmation as to the authenticity of any letter not received directly from the bank branch concerned and of any letter received from a bank without a request having previously been made. It is essential that in both cases, the auditors obtain confirmation from the branch concerned that the report has been prepared in compliance with the terms of the standard letter.
g) If no reply is received from a bank within two weeks after the original request was made or two weeks after the closing of the year whichever is earlier, the auditor should send a “First Reminder” so marked on the standard letter of request.
h) After the expiry of a further period of one week from the date of sending out the “First Reminder”, if no reply is received, the auditor may consider sending a “Second Reminder” so marked on the standard letter of request if deemed appropriate by him.
5.2 The Standard letter should be used in its complete form for all audit requests and in accordance with the above procedures in respect of financial statements for the relevant period and should not be altered to reduce the minimum contents prescribed. In certain circumstances, supplementary requests for additional information may be required for audit purposes. The letter containing such supplementary requests should be submitted to the bank, as far as possible, at the same time as the standard letter.
5.3 The auditor should require the banks to send responses to the confirmations, directly to the auditor address.
5.4 If the responses by bank to the confirmations sent to them are received via e-mail or facsimile, a telephone call shall be made to verify these responses. Documentation of the telephone call should, depending on the circumstances, ordinarily indicate:
- The name of the person spoken with;
- The name of the person who completed the confirmation;
- that such person was authorised and knowledgeable to respond;
- that there were no changes to the confirmations since the date they were provided electronically/via facsimile;
- verification of certain key client-specific information contained in the response; and
- conclusion that the source and contents of the response were verified without exception and that the response was received from an authorised individual.
This revised ATR – 18 (2012) supersedes the requirement as contained in ATR – 18 and is applicable for audits of financial statement/statements for periods beginning on or after July 1, 2011. However, earlier application is encouraged.
(230th meeting of the Council held on December 17, 2011)
STANDARD REQUEST FOR BANK REPORT FOR AUDIT PURPOSES
In accordance with your above-named customer’s instructions given hereon, please send DIRECT to us at the above address, as auditors of your customer, the following information relating to their affairs at your branch as at the close of business on and, in the case of items 2, 4 and 12 during the period since the end of the previous accounting period.
Please state against each item any factors which may limit the completeness of your reply; if there is nothing to report, state ‘None’.
It is understood that any replies given are in strict confidence, for the purposes of audit.
(1) Full titles of all accounts together with the account numbers and balances therein, including NIL balances:
(a) where your customer’s name is the sole name in the title;
(b) where your customer’s name is joined with that of other parties;
(c) where the account is in a trade name.
(i) Where the amount is subject to any restriction (e.g. a garnishee order or arrestment) or exchange control considerations (e.g. ‘blocked account’) information regarding nature and extent of the restriction should be stated.
(ii) where the authority upon which you are providing this information does not cover any amounts held jointly with other parties, please refer to your customer in order to obtain the requisite authority of the other parties with a copy to us.
(2) Full titles and dates of closure of all accounts closed during the period.
(3) The separate amounts accrued but not charged or credited as at the above date, of
(a) markup/interest; and
(b) provisional charges (including commitment fees)
(4) The amount of markup/interest charged during the period if not specified separately in the customer’s statement of account.
(5) Particulars (i.e. date, type of document and accounts covered) of any written acknowledgement of set-off, either by specific letter of set-off, or incorporated in some other document or security.
(6) Details of leasing facilities, loans, overdrafts, cash credit facilities (including standby facilities), and associated guarantees / indemnities specifying agreed limits, unused facilities, markup/interest terms, overdue rentals / installments and in the case of term loans, date for repayment or review.
(7) (a) In respect of facilities, contingent liabilities and derivatives and commodity trading, please give:
(i) Details of any security formally charged in favour of the bank, including the date and type of charge, (e.g. pledge, hypothecation etc.)
(ii) Particulars of any undertaking to assign any assets to the bank. If a security is limited to any borrowing, or if there is a prior, pari passu or subordinate charge, please indicate.
(iii) Whether the security supports facilities granted by the bank to the customer or to another party.
(iv) For any arrangements for set off of balances or compensating balances e.g. back to back loans, give particulars of any acknowledgement of set off (i.e. date, type of document and accounts covered).
(b) Investments, bills of exchange, documents of title or other assets held but not charged.
Please give details.
(8) Nature, currency, amount and extent of any facilities limits and details of period of availability of agreed facility of all contingent liabilities, viz:-
(a) Total of bills discounted with recourse to the customer or any subsidiary or related party of the customer;
(b) Details of any guarantees, comfort letters, letter of undertakings, bonds, endorsements or indemnities given to you by the customer in favour of third parties (separately specifying any such items in favour of any subsidiary or related party of the customer);
(c) Details of any guarantees, bonds or indemnities given by you, on your customer’s behalf, stating where there is recourse to your customer and/or to its holding, parent or any other company within the group;
(d) Total of acceptances;
(e) Total of outstanding liabilities under documentary credits;
(f) Others (please give details).
(9) Details specifying the nature, amount and maturity date of the assets covered under Islamic mode of finance (e.g. morabaha, musharika, modaraba etc.) or any other mode of finance including leasing:-
(a) Asset repurchase agreement;
(b) Asset resale agreement;
(c) Options outstanding at the relevant date.
DERIVATIVES AND COMMODITY TRADING
(10) Details of all outstanding contracts specifying the number, deal date, maturity or value date, price at which the deal was transacted and currency of the contract bought and sold for:-
(a) Total of foreign exchange contracts;
(11) Information in respect of any letter of comfort obtained by the bank from the parent or any other associated concern of the company.
ADDITIONAL BANKING RELATIONSHIPS
(12) A list of other banks, or branches of your bank, where you are aware that a relationship has been established during the period.
(13) OTHER INFORMATION
For and on behalf of
Signed in accordance with the terms and conditions for the conduct of the customer’s bank account.
NOTES ON THE STANDARD LETTER
(This Appendix contains explanations of item numbers referred to in the Standard letter)
(1) BANK ACCOUNTS:
The phrase ‘all accounts’ includes details of all current, deposit loan and foreign currency accounts and other advances or facilities, money held on deposit receipt and account numbers.
(4) ANALYSIS OF CHARGES:
The details of the rate of markup/interest applicable to any markup/interest-bearing account shall be required.
(5) Auditors will need to have an understanding of the principles governing set-off, but it should not normally be necessary to make enquiries beyond the question as put in the standard letter. Details should be available from the relevant documents. A right to set-off may exist even when there are no written arrangements.
(7) CUSTOMER’S ASSETS:
a) Security includes details of charge, mortgage or other claims or security or security registered (e.g. debenture, memorandum of deposit); assets charged and where appropriate cross reference to facility specifically secured.
b) Assets include bonds, stock and share certificates, investments, bearer or other securities; title deeds relating to freehold, leasehold or other property; bills of exchange or other negotiable instruments receivable (other than cheques); deposit receipts (as distinct from any account represented by the deposit receipt); the names of persons who are able to obtain release of the assets should be ascertained from the customer and are usually covered by the bank mandate.
c) Lien: Auditors should be aware that any assets held by the bank other than those specifically charged, may be subject to some form of banker’s lien, although this may only operate under particular conditions. It should be necessary to enquire only in exceptional circumstances.
d) Bearer securities: detailed enquiries on bearer securities should be made of the bank only when evidence cannot be obtained from the customer or his banking records.
(8) CONTINGENT LIABILITIES:
The liabilities under indemnities/ guarantees given in respect of shipping documents relating to imports do not have an expiry date. From time to time the banks take a view on old liabilities and remove some of them from their records. Certain of these old liabilities may not therefore be shown in the figure quoted by the bank, but it cannot be guaranteed that no claim will be incurred subsequently.
(13) OTHER INFORMATION:
Banks are often asked for introductions to other branches or banks for the purpose of establishing new sources of finance. The provision of any available information relating to introductions or new accounts will assist auditors to satisfy themselves that they have information about all of their client’s banking relationship.
SUGGESTED FORMAT OF LETTER FOR DEBTOR’S
CONFIRMATION BY DIRECT COMMUNICATION
(TO BE TYPED ON CLIENT’S LETTERHEAD)
DEBTOR’S NAME AND ADDRESS
As part of their normal audit procedures, we have been requested by our auditors ______________ of _________________ to ask you to confirm direct to them your indebtedness to us of Rs. ___________ as at ________________.
If the amount is in agreement with your records, please sign in the space provided below and return this letter directly to our auditors.
If the amount is not in agreement with your records please notify our auditors directly of the amount shown by your records and, if possible, send them full particulars of the difference.
For your reply to be of assistance to our auditors please give this request your early attention. *We enclose a prepaid envelope for your convenience.
Please do not send remittances to the auditors along with the confirmation.
CLIENT’S AUTHORISED SIGNATORY
PLEASE DO NOT DETACH
The amount shown above of Rs. ___________ due from us *is/ [is not] in agreement with our records at ___________________. *The details of discrepancies are annexed.
Authorized Signature & Stamp
Title of Position
• Delete as appropriate (stamped self-addressed return envelope by the auditor’s should be enclosed)
SUGGESTIONS FOR IMPROVING THE RATE OF FEEDBACK FOR DEBTORS’ CONFIRMATIONS
The efficiency of the audit procedure of debtor’s confirmation through direct communication is influenced by both the willingness and ability of debtor to respond accurately to the information presented on the letter of confirmation. Improving confirmation feedback rate may reduce the extent of other audit procedures that the auditor may have planned to undertake. Some suggestions for improving the rate of feedback are as follows:-
(a) Preliminary notification
The use of a brief letter, post card, or telephone call by the client immediately before posting the letter generally tends to increase responses as the debtor is less likely to ignore the letter having been previously notified.
(b) Request for information that the debtor is able to confirm
The confirmation request should include all the relevant information required for a response by the debtor.
(c) Use clear wording
The confirmation request should avoid technical jargon and should be written in simple language to facilitate an early and effective reply (including Urdu or vernacular, where considered necessary).
(d) Set deadlines
The confirmation should state deadlines e.g. REPLY REQUESTED WITHIN 5 DAYS.
(e) Provide return envelopes
Return envelopes that have the firm’s name and address printed in bold are likely to draw attention to confirmations and are likely to encourage debtors to respond early.
(f) Provide prepaid postage
To facilitate responses, auditors normally include a stamped self-addressed return envelope along with each confirmation.
(g) Send follow-up reminders/second requests
Sending reminders/second request soon after sending the initial letter are likely to increase feedback rates.