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What does this mean?
“Agree all balances listed on the bank confirmation letter to the company’s bank reconciliations or the trial balance to ensure completeness of bank balances.”the bank reconciliation will not include all the balances in the bank confirmation letter, so what use is there?
also how exactly is the bank confirmation letter different to the bank statement you get from the bank?
much appreciated,
thank you
A business may have more than one bank account (e.g. an overdraft, a current account and a deposit account) with more than one bank (e.g. because it has different branches in different locations and each branch uses a different local bank).
If you refer to Chapter 21 of our notes you will see that requesting confirmation of y/e balances is a standard audit procedure. The balance(s) in the confirmation should confirm the balances per the bank statement(s) which are the starting point for the reconciliation of each bank balance.
Do you have a bank statement per bank account?
So for example, if you had 3 bank accounts with Natwest, you would get 3 bank statements? Therefore if you asked Natwest for a bank confirmation letter, would that single bank confirmation letter, include the balance per statement of all 3 bank accounts
(3 bank statements) you have with the bank?If I also had 1 bank account with HSBC, then does that mean as an auditor, I would have to request another bank confirmation letter to HSBC?
In essence, you are not checking whether the bank has got it wrong i.e whether the balance per bank statement in the bank statement issued by the bank, is different to the confirmation letter balance, also issued by the bank. Rather, you are looking at whether there was a human error in bank reconciliation, by the human incorrectly transferring the actual balance per bank statement, when they were conducting a bank reconciliation?
So in essence, like you mentioned, the bank confirmation letter is just another confirmation that the balance per bank statement is accurate (there is no way the bank could get it wrong though?)
Thank you very much
Yes
Yes
You are absolutely NOT checking whether the bank “got it wrong” – it is not the banking organisation that you are auditing but the client who has an account with the bank.
The auditor obtains the bank confirmation directly from the bank because that is more reliable evidence (direct/written/external) than the bank statement which is held by the client (indirect/written/internal). To verify the reconciliation the auditor has to confirm the “start” point – and the bank confirmation provides the “best” (as in most reliable) evidence of this.
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