The audit reforms that are underway in the UK – crystallised in the consultation white paper from the Department for Business, Energy and Industrial Strategy – have the overall goal of improving audit quality and restoring public confidence in the audit profession.

The white paper states that "professional scepticism and the ability to exercise constructive challenge are both key in delivering quality audits". These key attributes depend in part on auditors' ability to manage the audit process, of which confirmation is a major component.

Confirmation is “the process of obtaining and evaluating a direct communication from a third party in response to a request for information”. And at the heart of a successful confirmation process is the critical step of validation. It ensures that your own company, your auditor and the individual third-party respondents (such as your bank) have been authenticated – supporting a thorough and reliable audit.

Confirmation, the world’s leading provider of online confirmations, has responded to the revised ISA (UK) 240 standard issued by the Financial Reporting Council (FRC), emphasising “the importance of validation of the responding party, both as a crucial step in establishing the authenticity of third-party audit evidence and as an action in the exercise of professional scepticism”.

To ensure “reliable audit evidence”, auditors have a duty to control confirmations – whether working within a paper, electronic or hybrid process. With effective validation, they can have confidence that the party responding to their request is who they claim to be, and that they are authorised to respond.

By validating where confirmations are sent and authenticating individual responders, your auditor can maintain a bias-free operation, support their opinions with reliable evidence, and reduce the risk of confirmation fraud.

There are too many recent instances of major financial statement frauds for you or your auditor to be complacent, particularly where paper-based procedures are still in use.

In a recent webinar with the Institute of Chartered Accountants in England and Wales (ICAEW), Confirmation’s Managing Director of Europe, Kyle Gibbons described “a highly instructive multiyear fraud in a smaller institution, Austria’s Commerzialbank Mattersburg, which claimed to have €800m of assets at eight different banks”. But it had relationships with none of them, and the assets didn’t exist.

The auditor had repeatedly failed to explore the integrity of the communication channel – confirmation letters were routinely sent through the post – or the data’s validity.

We have learned from the Wirecard scandal, for example, what happens when an auditor fails to identify fraudulent documents and fake third parties or to investigate suspect addresses.

With such demands on your auditor, you should consider whether they have access to the right technology. When they use a secure electronic platform such as Confirmation – which follows strict procedures relating to the validation of users within its network – then you can be assured that the responding party is the true one.

You will be able to sign the required authorisations digitally, after which your auditor can initiate requests for information and receive quick responses. By communicating with respondents directly via an online platform, your auditor will be able to save countless hours by eliminating a great deal of manual, time-consuming tasks.

We concluded our submissions to the FRC by describing the ideal context for validation. Responses are made within an online platform by a trained and authorised team, access is strictly limited and monitored, and robust authentication procedures are meticulously followed. In such circumstances, validation is greatly enhanced and the evidence received is far more reliable.

By deploying Confirmation in this way, you are guaranteed that your data is sent between validated users within a secure platform, eliminating the risk of being intercepted or compromised by unauthorised actors.

For more information on how Confirmation can streamline and digitise your audit, contact us today.

Confirmation pioneered the idea of digital confirmations in 2000 and still leads the industry today. More than 16,000 audit firms, 4,000 banks and departments, and 5,000 law firms have put our platform to work. We span 170 countries and process more than one trillion dollars in confirmations each year.