Bank Confirmations
As bank is the most liquid of all assets in general the auditor seeks direct receipt of a
confirmation from every bank or other financial institution with which the client does
business. Also most companies have only a few bank accounts with a large volume of
transactions during the year.The importance of bank confirmations extends beyond the
verification of the the actual cash balance. Generally bank confirmations (usually a
standard format) request several specific items of information, namely:
1. Full titles of all accounts in all currencies together with the account numbers and
balances thereon including nil balances, held at the year end. Confirmation of these
details would be sought on any account to which the client had title (including
accounts held jointly or in a trade name).
2. Full titles and dates of closures of all accounts closed during the period being
audited.
3. Details of any interest or charges accrued but not charged or credited at year end.
4. The amount of interest charged during the period being audited if not already
disclosed in the client’s bank statements.
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5. Particulars of any written acknowledgement of set-off, comprising date, type of
document and accounts covered.
6. Details of overdraft and loans repayable on demand, other loans and other facilities.
7. Details of any known client assets held as security, whether by a formal charge or
informal charge.
8. Details of other client assets held, including share certificates, documents of title and
deed boxes.
9. Details of any known contingent liabilities of the client at year end.
10. A list of banks, other branches of the same bank or associated companies where a
relationship with the client had been established during the period being audited.
11. Details of any personal guarantees or personal assets of the directors of the client,
held by the bank in connection with loans or facilities offered by the bank to the
client.
If bank confirmations are not returned, they must be pursued until the auditor is satisfied
as to what the requested information is. After the bank confirmation has been received,
the balance in the bank account should be traced to the amount stated on the bank
reconciliation. Likewise, all other information should be traced to the relevant audit
schedules. If the information is not in agreement, an investigation must made of the
difference.