ZeePedia buy college essays online


Fundamentals of Auditing

<<< Previous VERIFICATION OF BANK BALANCES Next >>>
 
img
Fundamentals of Auditing ­ACC 311
VU
Lesson 36
VERIFICATION OF BANK BALANCES
Following points should be considered during verification of Bank Balances:
i)
Agree the balances with the bankbook, and/or general ledger and bank statement.
ii)
In case of difference between bank book and bank statement obtain reconciliation for the bank
accounts.
iii)
Check that outstanding cheques have been cleared with the bank statement subsequent to the
year-end. If cheques have not been cleared subsequently ask for any special reason why they have
not been cleared.
iv)
Check that uncollected cheques have been realized, with the statement for subsequent period.
v)
Scrutinize the subsequent bank statement for dishonored cheques in order to detect worthless
cheques deposited to conceal shortages.
vi)
Investigate any significant reconciling items of an unusual nature.
vii)
Investigate about outstanding stale cheques.
viii)
Obtain direct bank confirmation.
Letter of confirmation from bank.
The purpose of this letter is to confirm the bank balances and other matters by the bank to the auditor
directly.
The letter is written by the Auditors to bank requesting them to confirm the bank balances and allied matters
directly to them.
It contains the following information:-
Requesting bank to send following information directly to them:-
(a)
Full title of account and balances thereon.
(b)
Accounts closed during the period.
(c)
Interest charged during the period.
(d)
Details of security and charges.
(e)
Details of investments or document held.
Standard Letter of Request for Bank Report
The Manager
(Bank Branch)
Date:
Dear Sir,
(CLIENT'S NAME)
STANDARD REQUEST FOR BANK REPORT
FOR AUDIT PURPOSES
In accordance with your above named customer's instructions given hereon, please send DIRECT to us at the
above address, as auditors of your customer, the following information relating to their affairs at your branch
as at the close of business on .............. (Balance sheet date) and, in the case of items 2, 4 and 9, during the
period since.............. (Opening date of the period)
Please state against each items any factors which may limit the completeness of your reply; if there is nothing
to report, state `NONE'.
It is understood that any replies given are in strict confidence, for the purposes of audit.
BANK ACCOUNTS
1.
Full titles of all accounts together with the account numbers and balances thereon, including NIL
balances:
a)
Where your customer's name is the sole name in the title;
b)
Where your customer's name is joined with that of other parties;
c)
Where the account is in a trade name.
116
img
Fundamentals of Auditing ­ACC 311
VU
NOTES
Where the amount is subject to any restriction (e.g. a garnishee order or arrestment) or exchange control
considerations (e.g. `blocked account') this information should be stated.
2.
Full titles and dates of closure of all accounts closed during the period.
3.
The separate amounts accrued but not charged or credited as at the above date, of
a)
Interest and
b)
Provisional charges (including commitment fees)
4.
The amount of interest charged during the period if not specified separately in the customer's
statement of account.
5.
Particulars (i.e. date, type of document and accounts covered) of any written acknowledgment of set-
off, either by specific letter of set-off, or incorporated in some other document or security.
6.
Details of loans, overdrafts, cash credits and facilities, specifying agreed limits and in the case of term
loans, date for repayment or review.
7.
a)
SECURITY: Please given:
(i) Details of any security formally charged to the bank, including the date and type of charge, (e.g.
pledge, hypothecation etc.)
(ii)
Particulars of any undertaking to assign to the bank any assets. If a security is limited to any
borrowing, or if there is a prior, equal or subordinate charge, please indicate.
b)
Investments, bills of exchange, documents of title or other assets held but not charged.
Please give details.
CONTINGENT LIABILITIES
8.
All contingent liabilities, viz.:
i)
Total of bills discounted for your customer, with recourse;
ii)
Details of any guarantees, bonds or indemnities given to you by the customer in favor of
third parties;
iii)
Details of any guarantees, bonds or indemnities given by you, on your customer's behalf,
stating where there is recourse to your customer and/or to its holding, parent or any
other company within the group.
iv)
Total of acceptances;
v)
Total of forward exchange contracts;
vi)
Total of outstanding liabilities under documentary credits;
vii)
Other - please give details.
9.
A list of other banks, or branches of your bank, where you are aware that a relationship has been
established during the period.
Yours faithfully,
DISCLOSURE AUTHORISED
For and on behalf of
(CUSTOMER'S NAME)
Signed in accordance with the terms
and conditions for the conduct of the
customer's bank account.
117
img
Fundamentals of Auditing ­ACC 311
VU
Verification of Debtors Balances
Following points should be considered during verification of Debtors Balance:
i)
Obtain confirmation from debtors.
ii)
Verify debts with reference to cash received since year-end.
iii)
Check accuracy and completeness of debtors' listing.
iv)
Check book-keeping in small sample of ledger accounts.
v)
Check postings and enquire into unusual entries in the control account.
vi)
Verify nature, amount and classification of credit balance.
vii)
Check transaction of foreign currency balances.
viii)
Review post year-end credit notes.
ix)
Enquire into debtor balances cleared by journal entries after the year-end
x)
Consider un-provided claims, enquire and review correspondence.
xi)
Check credit note cut-off, if material.
xii)
Consider adequacy and check bases and calculations of provisions for rebates
xiii)
Verify existence and title to bills receivable, trace proceeds.
xiv)
Consider whether results of work on cutoff affect debtors.
xv)
Review audit work on income.
Confirmation from Debtors:
Through verification of debtor's balances by direct communication the auditor obtains information regarding:
(i)
Adequacy of the system of internal control over sales, debtors, and collections;
(ii)
Accuracy of accounting records in general and of cut-off procedures for balance sheet purposes
in particular; and
(iii)
Irregularities such as teeming and lading, overdue balances & incorrect balances.
The above information helps an auditor to form an opinion regarding:
(a)
Reliability of debtors balances; and
(b)
Quantum and nature of disputes existing between the company and its customer.
Methods of obtaining Debtors Confirmation
(i)
Positive Method. Under positive method the company requests the debtor to confirm his
indebtedness to the company direct to the auditor and in case of disagreement he is also required to
state the balance as per his records and provide the auditor with full particulars of the difference.
(ii)
Negative Method. Under negative method the company requests the debtor to communicate with
the auditor only if he disagrees with the balance. If no communication is received within specified
time the auditor may assume that the balance is agreed.
Distinguish between Positive and Negative Confirmation
Positive Confirmation
Negative Confirmation
a)  In positive confirmation company request, the debtor
In negative confirmation company request, the
to confirm the balance direct to the auditor whether he
debtor to confirm the balance to auditor only
agrees while or not.
if he disagree with balance.
b) In positive confirmation if no reply is received the
In negative confirmation if no reply is received
auditors have to adopt other procedures to verify those
the auditor may assume that the balance is
balances.
agreed.
c)  Positive confirmation is preferred when the internal
Negative confirmation is preferred when the
control system is not satisfactory.
internal control system is satisfactory or when
confirming a large number of small balances.
d) Confirming significant balances due from debtors under
Confirming a large number of small balances
positive confirmation.
under negative confirmation.
118
img
Fundamentals of Auditing ­ACC 311
VU
Other procedures if reply is not received to Positive Confirmation
When no reply is received to a positive confirmation the auditor should carry out the following procedures:
i)
Check the outstanding balances as of balance sheet date have been subsequently received.
ii)
If subsequently not received then examine sale order, dispatch note, invoices and relevant
documents and correspondence with concerned debtors.
119
Table of Contents:
  1. AN INTRODUCTION
  2. AUDITORSí REPORT
  3. Advantages and Disadvantages of Auditing
  4. OBJECTIVE AND GENERAL PRINCIPLES GOVERNING AN AUDIT OF FINANCIAL STATEMENTS
  5. What is Reasonable Assurance
  6. LEGAL CONSIDERATION REGARDING AUDITING
  7. Appointment, Duties, Rights and Liabilities of Auditor
  8. LIABILITIES OF AN AUDITOR
  9. BOOKS OF ACCOUNT & FINANCIAL STATEMENTS
  10. Contents of Balance Sheet
  11. ENTITY AND ITS ENVIRONMENT AND ASSESSING THE RISKS OF MATERIAL MISSTATEMENT
  12. Business Operations
  13. Risk Assessment Procedures & Sources of Information
  14. Measurement and Review of the Entityís Financial Performance
  15. Definition & Components of Internal Control
  16. Auditing ASSIGNMENT
  17. Benefits of Internal Control to the entity
  18. Flow Charts and Internal Control Questionnaires
  19. Construction of an ICQ
  20. Audit evidence through Audit Procedures
  21. SUBSTANTIVE PROCEDURES
  22. Concept of Audit Evidence
  23. SUFFICIENT APPROPRIATE AUDIT EVIDENCE AND TESTING THE SALES SYSTEM
  24. Control Procedures over Sales and Debtors
  25. Control Procedures over Purchases and Payables
  26. TESTING THE PURCHASES SYSTEM
  27. TESTING THE PAYROLL SYSTEM
  28. TESTING THE CASH SYSTEM
  29. Controls over Banking of Receipts
  30. Control Procedures over Inventory
  31. TESTING THE NON-CURRENT ASSETS
  32. VERIFICATION APPROACH OF AUDIT
  33. VERIFICATION OF ASSETS
  34. LETTER OF REPRESENTATION VERIFICATION OF LIABILITIES
  35. VERIFICATION OF EQUITY
  36. VERIFICATION OF BANK BALANCES
  37. VERIFICATION OF STOCK-IN-TRADE AND STORE & SPARES
  38. AUDIT SAMPLING
  39. STATISTICAL SAMPLING
  40. CONSIDERING THE WORK OF INTERNAL AUDITING
  41. AUDIT PLANNING
  42. PLANNING AN AUDIT OF FINANCIAL STATEMENTS
  43. Audits of Small Entities
  44. AUDITORíS REPORT ON A COMPLETE SET OF GENERAL PURPOSE FINANCIALSTATEMENTS
  45. MODIFIED AUDITORíS REPORT