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Hi.
I’ve never really understood the reason why a bank confirmation letter has to be sent to the bank. Aren’t the bank statements sufficient?
It is the clients responsibility to disclose the information anyways.
At the end of the audit, the client is going to sign a representation letter that all information has been disclosed anyways.
Why is a bank certificate necessary?
The confirmation letter is sent by the bank to the auditor.
Although bank statements are a good source of evidence (written, third party) they are supplied to the auditor via the client. Bank certificates go directly from bank to auditor.
In addition to showing the bank balances, letter will also show accrued interest, charged/security/mortgages on client’s property and also assets ehld on behalf of the client (ike share certificates for investments).
It might be he client’s responsibility to disclose information but is is also the client’s responsibility to prepare a set of FS that are true and fair. The point about an audit is that clients can get this wrong either accidentally or deliberately.
The letter of representation is not very strong evidence and for most items it mentions its function is to focus the client’s attention on their responsibilities for preparing a proper setr of FS.
Isn’t it obvious that the bank statement balance will be the same as the balance as per bank certificate. I personally have been involved with several clients practically with audits and the balance always seems to be the same.
Yet, we have been told that the partner is not allowed to even sign the financials if a bank certificate is not available on he audit file.
I work at PKF international
Also, how is the information such as collateral or mortgages relevant to the audit itself, ie relevance of this information to the audit?
The bank certificate should be the same as the bank certificate. But if you can get direct evidence from the bank on an important matter like cash, why not hold out for it?
Information on mortgages will be relevant as these have to be disclosed in the notes – which are part of the FS you audit. It is very relevant to shareholders to know whether or not the company’s property is mortgaged: relevant on a liquidation and relevant if the company needs to raise more loans as once an asset is mortgaged tpo one lender a second mortgage onit would be much less attractive to a second lender.
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