Automating the Bank Confirmation Process: An Analysis of Auditor and Bank Errors

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Abstract

This paper examines the effect of automation of bank confirmations. We analyze electronic bank confirmation use and error rates using data provided by a third-party service provider. We find a significant increase in the use of electronic confirmations by audit firms of all sizes. Over the period 2006 to 2015, errors that required a reconfirmation were less than two percent of all electronic confirmations sent. Errors made by auditors were almost five times more likely to occur than errors made by bank employees. Most auditor errors involved use of an invalid account number, although invalid client contact, invalid request and invalid company name errors increased in recent years. Further, we find that auditors at Big 4 firms made significantly more confirmation errors than did auditors at non-Big 4 national firms. Finally, bank confirmation error rates and error types do not vary between those confirmations initiated in the U.S. vs. those initiated in other countries.

Authors

• Paul Caster, Fairfield University

• Randal J Elder, University of North Carolina Greensboro

• Diane J Janvrin, Iowa State University