ABA to PCAOB: Confirmation process needs modernization beyond current proposal

The American Bankers Association today provided comment on a proposed Public Company Accounting Oversight Board auditing standard intended to modernize the confirmation process. ABA agreed that the current standards need modernizing, but the proposal as currently outlined doesn’t go far enough to consider current and future technical opportunities and risks.

The current process is based on standards that took effect in 1992 and were adopted as a PCAOB interim standard in 2003. At present, according to ABA, third-party confirmation procedures are “pervasive” in audits of bank financial statements as well as auditors’ use of confirmations, in which banks are requested to confirm balances of the auditees. Advances in technology include new risks and opportunities that need further consideration, ABA wrote. “PCAOB should reconsider the confirmation process in the context of imposter scams … because fraudsters can use confirmation as a pretext for obtaining financial information. In addition, the procedures will be less effective given industry and government efforts advising customers not to provide financial information in response to unexpected requests.”

ABA urged PCAOB to “broadly reconsider” confirmation requirements, as the methods used to do so may be the same used to potentially defraud consumers. ABA also explained that because the way businesses and consumers supply and consume financial information has changed, using third-party confirmations as audit evidence is less effective. There are circumstances, ABA said, when obtaining equally persuasive evidence information can be achieved without sending a confirmation request.

The association recommended that the final standard allow auditors to “exercise appropriate judgment” in assessing audit evidence and how a standard might be able to withstand future innovations that will make financial information from external knowledgeable sources more accessible. The association also believes that any presumption that confirmations are necessary is outdated and that PCAOB should amend the proposal to provide other current and future procedures to effectively provide necessary audit evidence.