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Industry-wide Electronic Bank Confirmation Platform TECHNOLOGY THAT DRIVES AUDIT EFFICIENCY AND EFFECTIVENESS

Industry-wide Electronic Bank Confirmation Platform › v2 › downloads › resources › ... · 2020-03-10 · MIA championed an industry-wide Electronic Bank Confirmation Platform

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Page 1: Industry-wide Electronic Bank Confirmation Platform › v2 › downloads › resources › ... · 2020-03-10 · MIA championed an industry-wide Electronic Bank Confirmation Platform

Industry-wide ElectronicBank Confirmation PlatformTECHNOLOGY THAT DRIVES AUDIT EFFICIENCY AND EFFECTIVENESS

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Accountants”.

infringement.

Copyright © September 2019 by the Malaysian Institute of Accountants (MIA). All rights reserved.

The Malaysian Institute of Accountants’ logo appearing on/in this publication is a registered trademark of MIA. No part of this publication, either in whole or in part, may be copied, reproduced, recorded, distributed, republished, downloaded, displayed, posted, stored or transmitted in any form (tangible or intangible) or by any means, including but not limited to electronic, mechanical, photocopying, scanning or audio/video recording, information storage or retrieval system for any purpose whatsoever without prior express written permission of MIA. Such request can be emailed to the Strategic Communication & Branding Unit at: [email protected]

Permission is however granted to any person to make copies of this publication provided that such copies are strictly for personal use or fair use in the academic classrooms. Such copies shall not be sold or disseminated, and each copy shall bear the following credit line – “Used with the permission of the Malaysian Institute of Accountants”.

Any unauthorised use of this publication and/or any creation of a derivative work therefrom in any form or by any means is strictly prohibited and may violate the relevant intellectual property laws. In the event of any violation or infringement of MIA’s copyright and/or logo, MIA will not hesitate to take legal action for such violation and/or infringement.

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3 | Industry-wide Electronic Bank Confirmation Platform

INTRODUCTION

Online confirmations are now the preferred method for confirming client information in jurisdictions such as the United States of America, the United Kingdom and Australia. In Malaysia, online confirmations are currently being used in a limited manner for confirmations with some foreign banks.

To keep abreast of the latest market developments, MIA championed an industry-wide Electronic Bank Confirmation Platform which is now ready for roll-out.

MIA would like to accord its appreciation to Bank Negara Malaysia (BNM), TheAssociation of Banks in Malaysia (ABM),banking institution, local audit firms, and other stakeholders for supporting the Platform.

Electronic bank confirmations will eliminate duplications and provide authentication and authorisation procedures to detect fraud and deter fraudsters. This is a progressive step in auditing that will not only save time and resources but bring Malaysia up-to-speed with developments in leading markets.

Dr. Nurmazilah Dato’ Mahzan, MIA CEO

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Why is MIA championing theindustry-wide Electronic Bank Confirmation Platform?

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Under the International Standard on Auditing (ISA) 505 reliable audit evidence can be obtained in documentary form from a third party e.g. a bank, whether on paper, electronically or in another medium. Many bank confirmation request letters are sent to banks annually by auditors for confirmation of their clients' bank balances and arrangements. Presently, electronic confirmations are used in a limited manner in Malaysia.

Extol Corporation Sdn Bhd (Extol) was selected to develop an industry-wide electronic bank confirmation platform, with a very economical usage fee compared to the current fee charged by an international service provider.

Extol specialises in Information and Communications Technology (ICT) security and has significant experience in providing ICT services to financial institutions.

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PRESENT

FUTURE

Where we are now

Where we want to go

• •

Sending bank confirmations manually has been in practice since the beginning of the audit profession.

Manual bank confirmations are ine�cient and time consuming

The process is slow and time-consuming, with an average turnaround time of 4 to 8 weeks.

Any delays a�ect clearance by auditors and could impact the timely approval of financial statements by the Board of Directors. The management of audit clients can conceal fraud by compromising the manual confirmation processes, making it di�cult for even the most experienced auditors to detect financial fraud.

Today, there is a far more e�cient and secure way torequest and receive bank confirmations minimising the risk of error or fraud going undetected, i.e. throughelectronic confirmation.This electronic platform:

Enhances the security of the bank confirmation process through verifications of the organisations and users, ensuring confirmations are only sent and received by registered auditors and banksReduces risks of fraud related to the bank confirmation process

Enhances e�ciency in the bank confirmation process

Saves valuable time and e�ort that can be diverted to other higher value-added work

A better way to obtain bank confirmations

5 | Industry-wide Electronic Bank Confirmation Platform

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What are the challenges auditors face with paper-based confirmation?

Risk of Fraud

As compared to electronic confirmation, a paper-

based confirmation is more easily manipulated by a client, e.g. through the

creation of false confirmation contact

details, signature forgery and clients obtruding on the confirmation process,

all of which are hard for an auditor to detect.

Risk of Human Error

There is a risk of human error as the manual confirmation is labour-intensive, especially

during the audit peak period. For example, posting

confirmation to the wrong address will require re-sending

the confirmation and further follow-up.

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What are the challenges auditors face with paper-based confirmation?

Waste of Time

Numerous printing, mailing and follow-up tasks are essential before an auditor can receive the bank confirmation reply. There may be hundreds or

thousands of such confirmation request letters being sent out

and received, depending on the size of the firm. This time can

be put to better productive use.

Di�culty in Monitoring

The lack of a reply from banks could be due to requests not

being sent to the right place for processing. Paper confirmations

get lost in transit easily, especially during the mailing

process. Monitoring the status of a confirmation usually

incurs much time in chasing the responding entity on the

confirmation status.

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Environmentally-friendly paperless confirmation process

Reduce time and e�ort for printing, mailing and following up

Real-time tracking on the confirmationstatus

A. GREATER EFFICIENCY AND COST REDUCTIONS

Enable e�ective monitoring and timely meeting of deadlines

Smoother receiving process – deliver confirmation to the right person

Highly secure process to confirm bank balances/other arrangements

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How the electronic confirmation benefits you as an auditor

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9 | Industry-wide Electronic Bank Confirmation Platform

Reduce the risks of fraud on bank

confirmation process

Improve audit sta� morale, productivity and retention – frees up sta�

to perform more challenging work

Reduce risks of human error by decreasing

manual work

Higher response rate and shorter turnaround time

Platform’s enhanced security ensures the privacy and data integrity of the confirmation

B. IMPROVED AUDIT QUALITY

How the electronic confirmation benefits you as an auditor

One of the most common findings for low practice review inspection rating of audit firms is the failure to obtain bank confirmations. Electronic confirmations eliminate this issue and help you comply with practice review requirements.

Store the entire firm’s bank confirmation requests and responses received for di�erent engagement teams in one place for a period of six months

C. STREAMLINE YOUR CONFIRMATION PROCESS

Assign just one or two sta� to manage the centralised confirmation process for the entire firm’s audit engagements

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Quantifying the Benefits ofElectronic Confirmation

CASE STUDY

Empirical research has shown that electronic confirmations result in improvements in the response rates, turnaround times and reconfirmation rates.

How do we quantify these?

For auditors to perform a bank confirmation manually, the bank confirmation request will typically beprepared by a junior sta� and reviewed by a manager. When a response is received from banks, it will be compiled and passed to the manager for review. In a scenario where auditors need to follow up with banks, it may a�ect the clearance timeline by the auditor.

In addition, the time that audit sta� spend on manual preparation and compilation can be spent on doing other more productive work, e.g. observation, inquiries with management and other substantive procedures. This could improve the e�ciency and e�ectiveness of the audit.

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The example below compares the estimated time an auditor from a small and medium practice spends on bank confirmation using the manual and electronic methods, assuming that the auditor is handling 5 entities with a total of 25 bank confirmations:

ProcessApproximate Time Spent

Manual Electronic

Preparing confirmation (prepare, print, review process, franking and sending)

Chasing non-responses for confirmation

25 mins / entity= 125 mins

20 mins / entity= 100 mins

40% of non-response rate(10 out of 25 confirmations)

= 30 mins

10% of non-response rate(3 out of 25 confirmations)

= 9 mins

Following up (and communication) for re-confirmation

Receipt of bank confirmation (compile and file in, and review process)

30% of re-confirmation rate(8 out of 25 confirmations)

= 80 mins

4% of re-confirmation rate(1 out of 25 confirmations)

= 10 mins

15 mins / job= 75 mins

15 mins / job= 75 mins

Total Time

Total Time Savings

310 mins 194 mins

116 mins

Quantifying the Benefits of Electronic Confirmation

CASE STUDY

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HOW DOES THE PLATFORM WORK?

Registration & Activation Process Flow

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MIA DatabaseAll auditors mustbe verified withMIA database

SSL Encrypted

Audit Firm Verification & Admin Activation

Company KeyGeneration

Create Users

Start ConfirmationProcess

Company KeyActivation

Users Activation

AUDIT ADMIN

AUDIT USER

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HOW DOES THE PLATFORM WORK?Bank Confirmation Process Flow

Add Client Profile Bank Receives Confirmation

Request

Bank Replies

AUDITOR BANK

Submit Bank Confirmation Request

Auditor Downloads Confirmation Reply

5 4

321

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Bank Confirmation Request LetterAuthorised signature(s) in accordance to the mandate for the conduct of the customer’s bank account is still required on the hardcopy of the request letter. The sample of the Bank Confirmation Request Letter can be downloaded from the MIA website at www.mia.org.my.

6

ReconfirmationRequest

(Attach Bank ConfirmationRequest Letter )

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Storage of Data and the Encryption

The data are stored at Extol’s servers located in Malaysia.

All the sensitive data and PDF attachments received are encrypted.

The Platform provides an audit trail system that logs all the activities conducted on the Platform, including submission of requests and download of responses. It can be used to assist in any suspicious fraud or forensics investigation when required.

The Platform also observes the applicable IT security standards and guidelines where necessary.

Platform Process Control Assurance Examination

To provide assurance on the security controls and processing integrity, an independent external auditor is appointed by MIA to conduct a service organisation risk and controls assessment of the Platform, through the issuance of a Service Organisation Control (SOC) 3 Report.

How is the security of the Platform and data assured?

PDF File

+Secured User Login

Encryption Program Secure Key

Encrypted File

Verification of Users

During the registration process, theapplicants’ details must be associated with the audit firm’s details as recorded in MIA’s membership database. They will be verified with online and o�ine mechanisms to confirm their identity. Besides User ID and password, all applicants must provide an activation email for a 2-factor authentication process in order to validate their registration.

All users must verify the pre-set security image and phrase during the user authentication process to prevent phishing.

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How do auditors gain access to the Platform?Auditors must log in via www.auditor.econfirm.my to access the secure web-based Platform.

Who should use the Platform?All audit firms in Malaysia should use the Platform to enhance the security and e�ciency of the bank confirmation process.

The ultimate goal of the Platform is to help audit firms conduct an audit on proper confirmation that can detect, deter and prevent bank confirmation fraud. Freeing up your sta� from tedious paperwork could enrich their wellbeing and talent retention, which may in turn improve service quality and generate more billable profits for the firm.

What is the fee for using the Platform?The usage fee is RM15 per online submission of confirmation request and will only be charged upon the successful receipt of the confirmation.

Auditors will be billed twice a month on the 1st and 16th of the preceding period, and enjoy a credit period of up to 30 days to process and settle the payment.

SEND

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FREQUENTLY ASKED

2. How to register the audit firm as the user of the Platform?

You are required to read and understand the audit firm participation agreement before submitting the duly completed Audit Firm Registration Form to [email protected]. The documents can be downloaded from the MIA website at [email protected].

16 | Industry-wide Electronic Bank Confirmation Platform

1. Confirmation Request Letter subsequent to the implementation of the Platform?

Yes, the Letter needs to be revised to obtain consent from the audit client on the usage of the Platform. The sample of the Bank Confirmation Request Letter can be downloaded from the MIA website at www.mia.org.my.

3. Can I request for prior year bank confirmations and cancel a wrong request?

Yes, you may request for prior year bank confirmations and there is an option to cancel wrong request, but this will not be possible once the requester has sent the request to the bank.

4. Is a report on the entire confirmation status of an audit client available to be generated and downloaded from the Platform?

Yes, you may generate a report on the confirmation status based on several variables such as client, request date, requester, etc.

Is there any revision in the Bank

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For enquiries, please contact:[email protected]

1-40-1, Menara Bangkok BankBerjaya Central ParkNo. 105 Jalan Ampang50450 Kuala Lumpur.

Head o�ceMalaysian Institute of Accountants (MIA)Dewan AkauntanUnit 33-01, Level 33, Tower A, The Vertical Avenue 3, Bangsar South City, No. 8, Jalan Kerinchi59200 Kuala Lumpur, Malaysia.

Governed by:

+603 2722 9000 +603 2722 [email protected]