The Auditing Practices Board (APB) has announced the publication of a consultation draft of a second revision of Practice Note (PN) 16: “Bank reports for audit purposes”. As this is a second consultation draft, the consultation period is shortened to two months and ends on 20 September 2007.

PN 16 summarises the protocol agreed between the UK accountancy profession and the British Bankers Association (BBA) regarding the process auditors use when requesting confirmations of balances, transactions or arrangements from the bankers of the entity being audited. PN 16 was first issued in 1998 and a consultation draft of a revised version was issued for public consultation in October 2005.

Comments received during the consultation period were, in general, supportive of the changes proposed in the consultation draft. However, representations were made to the BBA to the effect that more significant changes were needed to the draft Practice Note so that the process was more efficient. This view was accepted by the representatives of the accounting bodies who originally developed the draft, and discussions have taken place since then to refine the process further.

In anticipation of the forthcoming year end, in October 2006 the 1998 version of PN 16 was withdrawn, and the extant consultation draft was reclassified as Interim guidance for auditors until such time as the subsequent revision was finalised.

Discussions have now been concluded satisfactorily, and a second consultation draft of PN 16 is being issued for public comment. The intention is to issue the final version of the revision of PN 16 with an effective date of 26 December 2008, so as to allow auditors and their clients time to gather additional information on account numbers that will be required in the future.

Richard Fleck, APB Chairman, said:

“Obtaining confirmation of bank balances is an important source of audit evidence, and I hope that auditors will find that the new process described in Practice Note 16 will improve the speed and accuracy of confirmations provided by banks. I am grateful to the BBA for their assistance in obtaining the agreement of banks for the updated procedures”.

Copies of the consultation draft may be downloaded from the Publications (Exposure Drafts) section of this website.

1. The Financial Reporting Council (FRC) is the UK’s independent regulator responsible for promoting confidence in corporate reporting and governance. Its functions are exercised principally by its operating bodies (the Accounting Standards Board, the Auditing Practices Board, the Board for Actuarial Standards, the Financial Reporting Review Panel, the Professional Oversight Board and the Accountancy Investigation and Discipline Board) and by the Council. The Committee on Corporate Governance, whose members are drawn from the Council, assists it in its work on Corporate Governance.
2. The APB is committed to leading the development of auditing practice in the United Kingdom and the Republic of Ireland so as to:
   
   • establish high standards of auditing;
     
   • meet the developing needs of users of financial information; and
     
   • ensure public confidence in the auditing process.
     
3. The APB issues Practice Notes to assist auditors in applying auditing standards of general application to particular circumstances and industries. Practice Notes are persuasive rather than prescriptive. However, they are indicative of good practice even though they may be developed without the full process of consultation and exposure used for auditing standards.
4. As well as confirming the changes made in the October 2005 draft, additional changes are proposed to PN 16 to:
   
   • add guidance to put the decision as to whether to obtain a bank report and, if so, what information to be covered by it, into the context of a risk based approach to the audit and to encourage auditors to refer to the annual facilities letter sent by the banks to many of their clients in making their risk assessments.
     
   • introduce new bank report templates for:
     
     • a Standard Request (including the option of additional information on trade finance and derivative and commodity trading) thereby allowing the bank to respond within its normal timeframe,
       
     • a Fast-Track Request thereby requesting the bank to respond within an accelerated timeframe, and
     • an Incomplete Information Request to be used when the auditor is not able to provide all of the information required for the Standard Request in relation to main account sort code and account numbers and, where additional information is requested, a sample reference to facility account numbers.
   
   
   • explain that the banks have agreed:
     • to publish addresses for the centres to which requests for audit information are to be addressed on the BBA website;
     • either to acknowledge auditor requests for bank reports and provide bank contact details, or where an acknowledgement will not be given to publish where contact can be made, by giving details on the BBA website of their preferred methodology. This will facilitate the auditor in following up late or missing bank reports, or question information in reports that were received.
     • clarify that, with a few exceptions, banks do not need a new authority to disclose information every time that auditors ask for confirmation of bank details.
   • request auditors using the Standard Request to provide the main account sort code and account number for each legal entity named in the request and, where additional information is requested, a sample facility account number for trade finance or derivative and commodity trading information. This helps banks identify the appropriate information;
     
   • remove custodian arrangements from the categories of additional information listed in the Standard Request. If the auditor wishes to confirm the existence and nature of specific assets held for safe keeping or suspects that the entity is concealing assets they make separate arrangements to confirm these or carry out a physical inspection; and
     
   • remove the statement requesting the bank to advise the auditor if the authority is insufficient to allow the bank to provide full disclosure of the information requested, as banks have not been doing this because of data protection regulations.
5. For further information please contact Jon Grant, APB Executive Director, on 020 7492 2410.