Practice Note 16 - Bank reports for audit purposes (Revised)
Comments from ACCA
January 2006
ACCA is pleased to provide comments on the Consultation Draft, Practice Note 16 Bank Reports for Audit Purposes (Revised). Our comments concentrate on the changes made to the document and are divided into those of general application and points of detail on the text.
General comments
We consider that the draft as it stands is unsatisfactory in several significant respects. It needs to be revised and the understanding with the British Bankers’ Association (BBA) renegotiated.
We are aware of considerable difficulties experienced by our members in trying to obtain bank reports that are accurate and supplied on a timely basis. We are disappointed, therefore, that the revision has made no radical change to the current system – for example by changing to a primarily online approach or by specifying and publishing service standards, such as in The Business Banking Code (for business customers with turnover less than £1 million).
By formalising the procedure whereby auditors making a request have to supply the main account number and sort code, the revision has institutionalised the failings of some banks which are unable to identify customers. There is no longer any incentive on those banks that did supply appropriate information to continue to do so. We urge the APB to continue to negotiate with the BBA on this important matter. We remind the APB of wording used in ‘Bank Reports for Audit Purposes Explanatory Note’ (issued September 2002) that ‘Much of the usefulness of the bank report as audit evidence is lost if account numbers and sort codes are provided in requests for bank reports.’ If the APB sanctions an approach whereby such information is provided normally, it must accept that, as a direct result, on occasion, auditors will fail to discover information that may indicate, for example management fraud. In such circumstances, the APB should include in the Practice Note (perhaps by extending paragraph 10) a statement that the supply of such information by auditors is in accordance with generally accepted auditing standards and does not constitute professional negligence.
The document no longer gives any guidance to auditors on bank reports where the bank is not a BBA member. There is neither a list of BBA members (such as forms Appendix 5 of extant Practice Note 16) nor any reference to where an up-to-date list may be accessed. We recommend that a short paragraph be introduced providing this information. This should include a note on the relevance of the distinction between BBA ‘member’ and a bank that is an ‘associate’.
As regards the drafting of the document, we are disappointed that it includes material that is unnecessary and that it uses present tense statements whose meaning is ambiguous. Examples of drafting that could be improved are given in our detailed comments below.
Detailed comments
Paragraph 5 refers to the BBA website. A URL should be given.
Paragraph 8 gives merger as one of the examples of auditor change that may necessitate a new authority to disclose. It should be made clear whether change in auditor name and change in auditor address are what banks will examine, as an auditor merger may involve neither.
Paragraph 11 and Appendix 3 ‘Bank confirmation request letter’, concentrate on a simple case and do not, therefore, give assistance to banks and auditors in complex circumstances, such as groups where there is more than one auditor. For example, is the ‘main account number’ to be quoted by an auditor of a subgroup that of the ultimate holding company or some other entity – is the subsidiary of an overseas entity perhaps to specify an overseas account? Consideration should be given to expanding this guidance.
Paragraph 11(b)(vii) should also mention ‘email address’ (as is done in Appendix 5).
Paragraph 11(c) - Specifying a period of one month in advance of the audit confirmation date is unhelpful when it will not apply for the vast majority of such dates (March or December year ends). It would be better to specify for the majority and make allowance for the minority.
The guidance in paragraphs 12 and 13 refers to ‘the account relationship manager’ and other individuals (by job title). We question whether most banking clients and auditors are familiar with this terminology and suggest that the guidance be written without reference to such titles. We also suggest that it would promote efficiency if the acknowledgement process was designed primarily to be carried out by email.
Paragraph 14 uses present tense wording that is ambiguous. If it is intended to mean that banks have undertaken to return the acknowledgement ‘as soon as possible’, it should state that and give a normal period (say, within three days).
Paragraph 15, referring to the need for information sooner than the ordinary, mentions ‘listed companies and other entities subject to tighter reporting deadlines’. To assist bankers, a fuller listing of relevant entities should be included.
Paragraph 16 uses present tense wording that is ambiguous. If it is intended to state that banks should provide written confirmation of information requested by auditors then it should say so.
Paragraph 17 is descriptive but has no substantive content. It should either be deleted or altered to convey something useful to the reader.
Paragraph 19 is descriptive and is not relevant to bank reports for audit purposes. It should be removed.
Appendix 5 ‘Bank acknowledgement of auditor request’, contains superfluous wording. The instruction ‘Part A - This part to be completed by the auditor’ is clearly unnecessary.