White Papers

SAS No. 99 & Confirmation Fraud Risk

In January of 2003 the AICPA issued one of only three practice alerts published in 2003, Practice Alert No. 03-1 Audit Confirmations, to emphasize the importance of: (1) Performing confirmations; and (2) To highlight the need to perform them correctly. Less than one year later, in December of 2003, an almost $5 billion confirmation fraud occurred – the world’s largest confirmation fraud ever – and Europe’s largest financial disaster by any cause!
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Issues Surrounding the Confirmation Process

Two major accounting firms have just been sued for $10 billion by Parmalat for the fraudulent $5 billion bank confirmation that sent the Parmalat company into bankruptcy and lost investors and lenders billions of dollars in the U.S. and abroad. The investment banks and underwriters have also just been sued by Parmalat for over $12 billion. Along with the class-action lawsuits from the retail investors in Parmalat’s stocks and bonds, the next round of lawsuits likely will be against the accounting firms by all those who relied on the financial statements: the investment banks, the institutional lenders, the investors etc.
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Confirmation Fraud

As part of a typical audit, the external auditors routinely require confirmation from lenders and financial institutions as to the account balances or amount of indebtedness of the audit client. In the past, this process has been paper-based and fraught with the potential for fraud. For the auditor, there has historically been little to no validation that the paper form went to a legitimate party to the transaction, lending the process to manipulation by the audit client. For the lender or financial institution, the fact exists that by definition, third-party confirmations are not returned to the client’s address but to an undocumented and potentially unauthorized recipient. At its best, the paper-based process is both time consuming and expensive for the client, the auditor and the financial institution. At its worst, it is wide open for those who wish to commit an almost undetectable fraud.
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Industry Guidance and the Role of Confirmations

The following white paper discusses the audit confirmation process and the recent accounting literature related to audit confirmations, and addresses the role and potential added value of the Confirm™ service of Capital Confirmation, Inc. in the audit confirmation process.
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E-Sign Act: Use and Enforceability of Identifiers, Passwords and Personal Identification Numbers as Signatures

As a general matter, the parties to commercial arrangements such as those offered by Capital Confirmation are permitted to establish the framework for communications, the methods by which those communications may be transmitted, the manner in which those communications will be treated, and the legal effect of such communications.
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