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CHAPTER 15 - Coggle Diagram
CHAPTER 15
Written authority
Bank require written authority from client
To disclose info in bank confirmation letter
Ongoing standing authority
Rather than separate authority each time info is required
Auditor's request
Must refer to client's letter of authority
And date given in it
Joint bank accounts
Letters of authority signed by all parties will be necessary
Substantive audit testing
Bank confirmation letter
Common procedure for the audit of entity's year-end cash balance
Obtain direct confirmation from the entity's banker
Amounts appear
In FS
In notes of FS
Eg. Guarentee
Valuable source of audit procedure
Independent source
Provide greater assurance of reliability than evidence from client's own record
Procedure
Auditor choose which bank
Client give authority to bank to disclose info to give confirmation to auditor
Bank confirmation letter produced on auditor's headed paper & sent to the bank at least 1 month in advance of client's year end. Include a preaddressed envelope to facilitate replies
Auditors receive reply from bank
Auditors agree balance in bank letter to bank balance as per client records
Preparation & despatch of bank confirmation letter
Responsibilities of auditor
Control over content
Dispatch of confirmation requests
Approaches
Listing balances & other info & requesting confirmation of their accuracy & completeness
Requesting details of balances & other info, which can then be compared with the requesting client's records
Replies
Should be returned directly to auditors
Auditors should not request only if info is incorrect
Cut off testing
Care must be taken
To ensure no window dressing
Attempt to overstate the liquidity of the company by
Keeping the cash book open to take credit for remittances actually received after year end, thus enhancing the balance at bank and reducing receivables
Examine paying-in slip
To ensure lodgements actually paid into the bank and before YE
Recording cheques paid in the period under review which are not actually despatched until after the year end, thus decreasing the balances at bank and reducing liabilities
Check whether outstanding cheques at YE were cleared within a reasonable time in the new period
Give assurance over
Completeness
Existance
Intro
Cash in fs
Cash in hand
Cash on deposit in bank accounts
Choosing where to send a confirmation request
Which bank depends on
Size of balance
Volume of activity
Degree of reliance on IC
Materiality to FS