Reliance on external party 2616

  • Our auditor maintains now in Y2 that a procedure that relies on external action (such as receipt of broker confirmation) cannot be used as a basis for reliance and applied to the risk of trade omission. Back Office Owner sees this as a strong relevant control if there is missed or late input that he/she can therefore cannot know to confirm.
    Has anyone ever encountered this concept. Do you know of any guidance that support or contradict this notion.
    Many Thanks

  • 3rd party deal confirmation is a reasonable control, especially if this is a regularised process.
    However, although I can see how getting 3rd party confirms would be a good control for existence and valuation it probably doesn’t fully cover completeness i.e. it could tell you about deal omitted from Broker X but what about deals not done with that broker or even done without a broker?
    A lot may depend on what type of trading arrangements you have. Are you a trading house or a company that does some trading e.g. for hedging? If only doing limited trading through a single broker this may still be OK.
    Can you provide a bit more information?

  • Thanks. Yes I believe that one must look at the industry practice and specific business situation. This is a very regularised process with Reuters, brokers or dealer to dealer telephone execution. All are also confirmed ultimately via SWIFT messaging/matching as this is Interbank dealing.

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