Bank Confirmation Letter

Question 1

What is a common procedure for the audit of an entity’s bank balances?

Answer 1

For the auditor to obtain direct confirmation from the entity’s banker(s) of balances

And other amounts which appear in SOFP

Other information which may be disclosed in notes to FSs, for example guarantees

Question 2

What are bank confirmation letters?

Answer 2

A valuable source of audit evidence because they come directly from an independent source

Question 3

Why bank confirmation letters are a valuable source of audit evidence?

Answer 3

providers greater assurance of reliability than evidence obtained solely from the client’s own records

Question 4

1st step in procedure?

Answer 4

Auditor to choose from which bank(s) to obtain confirmation

Question 5

2nd step in procedure?

Answer 5

Audit client to provide bank with written authority to disclose the information requested in confirmation to auditors

Question 6

3rd step in procedure?

Answer 6

Bank confirmation letter produced on auditor’s headed paper and sent to bank at least one month in advance of client’s uear end

Question 7

What does bank confirmation letter include?

Answer 7

A preaddressed envelope to facilitate replies

Question 8

4th step in procedure?

Answer 8

Auditors receive reply to letter from bank

Question 9

5th step in procedure?

Answer 9

Auditors agree the balance in bank letter to bank balance as per the client records