Bank confirmation is the auditor’s audit procedure to test the existence, accuracy, and ownership of the bank account and bank balance of the entity.
This procedure is normally performed during the interim audit rather than at the completion stage. However, if there is no interim, then it is performed at the final fieldwork the same as other procedures.
Banks’ balance, accuracy, and ownership are very important for auditors, especially for some countries, since the risks that information could be manipulated are different from country to country.
In most cases, banks balance is what auditors focus more on, but ownership of management or the company for the bank account is also very important.
Normally, auditors review the bank’s balance and select some important accounts to be confirmed during the interim audit. Auditors draft the confirmation and send it to the client to review and get the confirmation signed.
Once the confirmation signed, auditors are the one who proceeds the confirmation to banks. The bank confirmation is normally the positive confirmation, and all the confirmations are responding to auditors.
For the best practices, auditors should prepare the schedule and control sheet to control the completeness of sending, receipts, and confirmation.
Bank Confirmation Letter:
A Bank confirmation letter is the letter prepared by auditees as the request by the auditor during the audit process to confirm the balance, transactions, and ownership of the bank account. This letter is prepared by the auditee and send to the bank directly by the auditor. It should not send by the auditee.
Once the bank received the letter, the bank will also need to send it directly to the auditor. Not auditees. If the auditor noted that the auditee sent the confirmation to the bank, then the auditor needs to send the letter to the bank again.
What is the information that should be included in the letter?
Although the auditee prepares the confirmation letter, the template is normally provided by the auditor. There is much information that needs to be included in the letter, which is depending on the auditor’s objective and the requirement of each and individual bank.
When we prepare the bank confirmation letter, the three parties’ information needs to be included in the letter. These include the bank that the letter will send to, auditee information, and auditor information. In general, the following information is included in the bank confirmation.
The bank’s information that should be included in the bank confirmation letter should be:
- Bank of the bank or branches
- Address of the bank including physical location, website, email, and department (Some bank need this informaiton)
- Company’s name with logo of auditee
- Facilities to be confirmed
- Period or date to be confirmed
- Authorise signature (Bank will not respond without this)
Auditor information will also need to include the bank’s response to the confirmation letter directly to the auditor. So the information of the auditor that needs to include are
- Name of audit firm
- Address of audit firm
- Name of per persone whose respond letter will send to.
- Contact detail of receiver of the bank’s respond letter