PAPS-1000

Page 1: Introduction to ASPC and PAPS 1000

  • ASPC: Auditing Standards and Practices Council

  • Topic: Philippine Auditing Practice Statement 1000 regarding Inter-Bank Confirmation Procedures.

Page 2: Overview of PAPS 1000

Contents

  1. Introduction (Paragraphs 1-4)

  2. The Need for Confirmation (Paragraph 5)

  3. Use of Confirmation Requests (Paragraphs 6-9)

  4. Preparation and Dispatch of Requests and Receipt of Replies (Paragraphs 10-12)

  5. Content of Confirmation Requests (Paragraphs 13-20)

  6. Effective Date (Paragraph 21)

  7. Acknowledgment (Paragraphs 22-23)

  8. Appendix: Glossary

Purpose of PAPS 1000

  • Issued by ASPC to aid auditors and examiners of BSP on inter-bank confirmation.

  • Not an authoritative document like PSA.

Page 3: Introduction to Inter-Bank Confirmation Procedures

  1. Purpose: Assist external auditors and bank management.

  2. Importance: Direct confirmation from banks assures reliability of audit evidence.

  3. Types of Confirmation: Both on-balance sheet and off-balance sheet items (e.g., guarantees).

  4. Challenges: Language, terminology, and interpretation, leading to misunderstandings during confirmation.

  5. Local Practices: Procedures may vary by country; this statement outlines key steps rather than exhaustive procedures.

Page 4: The Need for Confirmation

  • Management control: Banks need confirmations for transactions with other financial institutions and customers.

  • Context: Confirmation necessary for inter-bank relations both domestically and internationally.

Page 5: Approaches for Seeking Confirmation

  1. Auditor's Decision: Choose the best approach for confirming balances or information, either listing or detailed requests.

  • Balance confirmation or detailed records comparison.

  1. Importance of Response: Every request should elicit a reply; no response indicates issues.

Page 6: Preparation and Dispatch of Requests

  1. Determining the Right Recipient: Confirmation requests should go to the responsible department (e.g., internal audit) of the confirming bank.

  2. Language: Prepare requests in the confirming bank's language or in common business language.

  3. Control: Auditors manage content, obtain necessary authorizations, and ensure replies are directed to them.

Page 7: Content of Confirmation Requests

  1. Dependence on Purpose: The structure of requests aligns with their intent, local practices, and account procedures.

  2. Clarity: Ensure the request is easy to understand for the confirming bank.

  3. Timing: Send requests throughout the year tailored to specific inter-bank relationships.

  4. Common Requests: Include balance details on current accounts, loans, and other financial accounts.

  5. Contingent liabilities: Confirm liabilities like guarantees, letters of undertaking, etc.

  6. Specific Deals: Request confirmation on repurchase agreements with clear transaction details.

  7. Outstanding Contracts: Confirm forward transactions and relevant details for accurate understanding.

  8. Custody Items: Request confirmations on securities held in custody with descriptive details.

Page 8: Effective Date and Acknowledgment

  1. Effective Date: For audits of financial statements for periods ending December 31, 2003, and beyond.

  2. Acknowledgment: Based on international standards with no significant differences.

Page 9: Council Approval

  • PAPS 1000 approved unanimously on September 30, 2002, by members of ASPC, highlighting key contributors.

Page 10: Appendix - Glossary

  • Definitions of terms relevant to inter-bank confirmation:

    • Collateral: Security provided for a loan, encompassing various property types.

    • Contingent Liabilities: Potential liabilities dependent on certain conditions.

    • Encumbrance: Claims or liens affecting property ownership rights.

    • Offset: Bank's right to claim account balances as repayment.

Page 11: Appendix - Additional Terms

  • Definitions continue:

    • Options: Rights to buy/sell securities within a fixed timeframe.

    • Repurchase Agreements: Agreements to buy back securities under certain conditions.

    • Safe Custody: Bank services for securely storing valuables.

    • Line of Credit: Maximum amount of funds available from a bank over time.