Getting bank confirmation is one of the most important audit procedures. Auditors tend to confirm the balance directly from the bank. They use a specific format to get confirmation of the bank balance; the stamp of the audit client authorizes their request.
The request is made to the bank for dispatching confirmation directly to the auditor’s office. Once confirmation is received in the auditor’s office, it’s compared with the balance in the bank statement and the document prepared for the bank reconciliation process. Matching the balance in the bank confirmation with the cash ledger/bank statement enhances confidence in the balance.
As it ensures accuracy, existence, and ownership of the account balance. The procedure can be performed at interim and year-end audit, and confirmation is required irrespective of whether the bank account is kept in the local/foreign currency.
Usually, a banks confirmation control sheet is prepared by obtaining input from the trial balance. All the balances are documented in the sheet. Details related to dispatch receipt and the amount are mentioned in the control sheet to ensure the audit procedure is performed appropriately.
It’s important to note that auditors not only request details for the account balance but any loan, line of credit, running finance, and any other facility granted to the business.
Bank confirmation letter
A Bank confirmation letter is the letter received from the bank confirming balance and other facilities granted to the business. It works as a direct source of assurance for the auditor to form an audit opinion. Once a bank letter is received directly by auditors, they check the details and compare with the details provided to them by the client.
Content of the bank confirmation request – (for audit client)
The following content should be part of the bank confirmation request sent to the bank.
- Name of the audit client with company logo. Confirmation with the logo and letterhead of the auditor can also be sent. However, it must be authorized by the audit client in any case.
- Details of the facilities to be confirmed. For instance, details of the balance, details of the facilities, and any other arrangements. Alternate approach can be to provide empty boxes to be filled by the bank.
- Date of confirmation for the balance and other facilities.
- Duly authorization from audit client – the bank is not supposed to reply if signatories do not sign bank confirmation.
Content of the bank confirmation request – (for auditor)
Following content needs to be part of the bank confirmation.
- Name and logo of the audit firm.
- Address of the audit firm (direct reply should be requested).
- Name of the concerned manager.
- Respond letter for the bank
Difference between bank confirmation and bank verification
Bank confirmation and bank verification letters refer to the same letter and can be used in exchange. This letter is confirmation from the bank about the balance and the ownership of the individual or the company.
Obtaining confirmation is one of the essential audit procedures, and it involves an authorized request to the bank to provide details about a specific business. Auditors use bank confirmation to verify the existence, completion, and ownership of the cash shown in the financial statement.
Read more on, tothefinance