Electronic audit confirmations

by Val D. Steed, CPA, MA, CITP

As tax season closes and we look forward to the rest of the year, it is appropriate to alert CPA firms of technology that might make a significant difference in their audit practice. The April edition of the Journal of Accountancy has a nice article on confirmations and mentions the technology described below.

K2 Enterprises is always looking for new and cool technologies for CPA firms. A year or so ago, my partner, Randy Johnston, and I looked at some cutting edge technologies. Electronic audit confirmations are not only possible now, but also very useable as well.  Over the years, I have always been keen on “useable” technologies, not just the “bleeding edge” technologies. By the time we had the opportunity to review Capital Confirmation’s electronic confirmation system, it was way past the bleeding and leading edge; it had already moved on to useable in our opinion.

At the time of writing this article, Capital Confirmation was the only solution available for electronic audit confirmations related to bank accounts. We certainly are open to any other players out there in this market. If there are any, please feel free to contact us.

My experiences with audit work have never been all that positive. I remember long hours; ticking off compliance in loan application documents, looking for assets that were really hard to locate, and mainly just grunt work. I do know that one of the greatest frustrations in an audit is the significant waiting period related to confirmations. Traditional paper confirmations always take a significant amount of time and delay audits for weeks.

Bank confirmations can now be done quickly and accurately bringing to play effectiveness and efficiency; the two favorite Es of an auditor. Also, this technology is supported under the standard of AU 330 which states the “properly controlled electronic confirmations can provide reliable audit evidence.”

The four key elements of this solution that should warrant your attention are:

1. Time saved on audit due to quicker confirmations (real world results reported as high as 50% of confirmation time saved).
2. Reduced exposure to fraud due to encrypted electronic communication.
3. Improved consistency and accuracy of audit confirmations.
4. Banks are very eager participants in this technology as it reduces their exposure to loss and fraud as well as the CPA.

This type of technology allows staff to perform pre-audit work that will automatically engage on a given date making staff chargeable (billable) during October, November, and December.

Let’s look at a simple real life use of this technology:

Smith, Turner & Reeves

Smith, Turner, & Reeves has offices in Jackson and Oxford Mississippi and used Capital Confirmation to streamline the audit confirmation process by replacing paper-based processes with electronic confirmations.

Key points of this success story:

Web-based interface for performing audit confirmations, enabling electronic transfer of financial data

• Multiple layers of authentication and security to validate the authenticity of users, protect user logons, and encrypt data
• A record of activity with all confirmations, providing a traceable path of accountability to each individual involved in the confirmation process
• Significantly reduced exposure to fraud due to encrypted electronic transfer of information directly from financial institutions to CPAs

“In the past, we relied on manual confirmations to get both bank account balances and loan balances. That involved a lot of time on our part to get the numbers. We’re very pleased with the solution. Using it, we’ve cut our time spent on doing confirmations in half,” said George Smith, CPA Partner.

For more information on electronic audit confirmations, read the FAQ list online.

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