MC Exclusive: Auditors, public sector banks to launch balance confirmation portal

Auditors are required to report on various matters including those related to assets, quarterly returns, statements filed by the borrower company to banks, defaults in repayment of loans to banks, and declaration of a company as a wilful defaulter by banks.

Chartered accountants and the 12 public-sector lenders in India plan to come up with a portal in three months that will confirm account balances of companies, providing more transparency, efficiency and reducing auditing costs, people familiar with the proposal said.

Private banks and mutual funds are likely to come on board the platform at a later stage, they said. The platform will be owned by the Institute of Chartered Accountants of India and the Indian Banks’ Association.

“The Indian Banks’ Association and chartered accountants discussed suggestions to deal with practical difficulties faced by auditors in obtaining account balance confirmations from banks. We are going ahead with the development of a balance confirmation portal with IBA,” a senior member of the ICAI told Moneycontrol.

Presently, there is no standard process or format to obtain balance confirmations from banks. Auditors are exposed to risk if they use incomplete confirmation as audit evidence, the ICAI member said.

In recent years, auditors’ roles have come under scrutiny in cases such as Satyam Computer Service and the Adani Group companies.

Difficulties involved

Auditors say they face difficulties in obtaining confirmations from banks and in some cases, the information needed is delayed or insufficient. Auditors are required to report on various matters including those related to assets, quarterly returns, statements filed by the borrower company to banks, defaults in repayment of loans to banks, and declaration of a company as a wilful defaulter by banks.

Some banks used the services of third-party vendors to provide confirmations and charged auditors a fee.

The proposed common platform will cover public sector banks initially and private banks and financial institutions may be added later.

IBA is talking to the Reserve Bank of India’s Institute for Development and Research in Banking Technology (IDRBT) and the National E-Governance Services Ltd. (NeSL) to develop the portal in collaboration with PSB Alliance. It will take at least three months for the portal to come up.

The public sector banks are on board. Costing and other details have to be worked out, a senior banking official told Moneycontrol.

PSB Alliance is a joint venture formed by all 12 public sector banks.

“IDRBT is an RBI subsidiary while NeSL is a government entity. There is no question of the RBI raising an objection as there is no third party involved which is non-regulated. PSB Alliance is also a public sector entity, which will coordinate and be an aggregator,” the official said.

Auditors faced flak in the Satyam Computers case of 2009 after the company faked the balance certificates of banks. Today, auditors have to audit accounts that companies may have in 10 banks. A member of the auditor’s staff has to be sent to each branch for balance confirmation, which has high costs. The auditors cannot use a third party for this because it has no validity.

However, if the auditors are able to get balance confirmations from an authenticated authority, as proposed in the portal, they need not visit each branch.

“Under the proposed system, there will be a regulatory set-up comprising ICAI, IBA, PSB Alliance and IDRBT or NeSL. As banks will take responsibility for balance confirmations, there will be no cost levied on auditors for obtaining balance confirmations. The system is expected to be beneficial to auditors as it will be highly efficient, reliable and have appropriate authentication,” the official said.