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ISCA generally supports the proposals in the ED, except for those relating to the derecognition of financial liabilities through electronic transfer, which in our view, are excessive.
We consider electronic payment to be a mode of payment which is not dissimilar to traditional settlement methods such as cheques, and that the typical bank reconciliation procedures performed at the end of the reporting period should suffice in addressing the concern of whether a financial liability is settled.
For the reporting entities, there is no need to expend significant efforts and resources to verify that the derecognition criteria for the financial liability is met. It is also impractical for the entities to individually assess that the settlement risk associated with the banks’ electronic payment system is insignificant.
For the auditors, additional verification work is expected to be performed to verify that an entity has met the derecognition criteria. Since payment instructions are typically executed only when the entity has sufficient funds for the payment to be made and the settlement can be easily verified, this is typically considered a low-risk area. The additional efforts required do not commensurate with the risk level in this area.
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