Investors, lenders, government agencies, and the public rely an external auditor’s independent opinion for financial audits on whether a company’s financial statements are accurately presented. Independent audit confirmations form the cornerstone of this external audit process.
The audit confirmation process has been around for more than 100 years, but even with advances in technology and regulatory changes, a paper-and-post system still endures in India.
During an audit engagement, someone on the engagement team will need to set aside time to stuff envelopes and post confirmation requests to banks or businesses. But the problem is, it takes several frustrating weeks to get responses, and if some are missing, more time is spent trying to track those down. The manual confirmation process also leaves scope for frauds to go undetected.
The Rs6,700-crore Satyam fraud, which led to an erosion of Rs14,000 crore worth of investor wealth in 2010, is a perfect example where confirmation fraud cost auditors, banks, and investors thousands of crores in losses and even resulted in criminal charges for the parties concerned. This also led to the Serious Fraud Investigation Office (SFIO), in its report on the Satyam fraud, to suggest to the RBI that it should come out with definite guidelines for banks to issue balance confirmation certificates to help auditors verify company accounts. PricewaterhouseCooper India also admitted to the US market regulator, the Securities & Exchange Commission (SEC), that deficiencies in their auditing process were not restricted only to Satyam, but extended to other companies audited by them in India as well.
A platform where auditors can independently confirm all balances directly from third-party institutions like banks will deter frauds like this in the future. Purportedly, one of the reasons behind the current NPA mess banks are dealing with is because they granted loans against fraudulently inflated balance sheets which were either incorrectly or incompletely audited due to not having an easy way to receive balance confirmations.
This led five entrepreneurs—CA Kiran Bafna, CA Harsh Jogani, Nikita Gulechha, Ahmad Maredia and Hardik Gandhi—to create VeriFirm.in, where auditors could confirm all balances that show up on a balance sheet, independently and directly from the source. In June 2015, VeriFirm.in launched its electronic audit confirmation service that enables banks/financial institutions, corporates, and chartered accountants streamline their year-end balance confirmation process.
During the launch, VeriFirm.in’s digital marketing campaign caught the attention of Brian Fox, president and founder of Confirmation.com, the global leader of online audit confirmations. After evaluating potential synergies between the two companies, Confirmation.com offered to acquire Verifirm.in.
With the acquisition of Verifirm.in in April 2016, Confirmation.com launched its service in India, providing banks, corporates, and chartered accountants an online platform to better manage every aspect of the audit confirmation process.
Accounting firms that move to a paperless audit process, experience positive changes throughout their firm including increased efficiency and happier staff. Implementing a paperless audit confirmation process is possible when auditors have the right technology in place. Confirmation.com provides a highly secure platform which supports validating third-party responders and allows for responses to be provided in days rather than weeks. More than 13,000 accounting firms globally, including the Big 4, are already realizing the benefits of using the Confirmation.com service.
For banks, Confirmation.com provides an easy-to-use platform that reduces cost, enhances customer satisfaction, and improves internal efficiencies while combating fraud. By cutting down on stationary, printing, and postal charges as well as reducing unnecessary foot falls in their branches, Confirmation.com allows them to reduce costs. Comprehensive reporting allows banks to easily monitor performance, quickly access historical responses, and accurately track the activity of each user within the application.
The advent of an online confirmation service has altered the audit landscape forever, offering a more efficient and streamlined process, and having auditors armed with the tools required to maintain control over the process with the ability to directly communicate with validated third-party responders.
Leading online technologies better prepare auditors to meet changing audit standards, support professional skepticism, and ensure reliable audit evidence. It also supports a true paperless audit process. Today, auditors can make the ideal audit confirmation process a reality.