Auditing and assurance revision question and answer

Auditing and Assurance Revision Questions and Answers

The external auditors of companies often write to companies‘ bankers asking for details of bank balances and other matters at the year-end.

Required:
Explain why auditors write to companies‘ bankers and list the matters you would expect banks to confirm. (5 marks)
ANSWER
Why auditors seek bank confirmations – matters confirmed

This matter is noted in ISA 505 ‗External Confirmations‘.
Auditors seek bank confirmations in order to provide third party, written evidence in relation to the balance sheet disclosure of cash, liabilities and related items.

The matters typically confirmed the bank include:

(i) Details of all bank balances, overdrafts and loans held at all branches.
(ii) The charges or restrictions over any such accounts.
(iii) The terms and repayment conditions of loans and overdrafts.
(iv) Any right of set-off between accounts in credit and other balances.
(v) Any securities held the bank (such as fixed assets charged as security).
(vi) Any relationships with other banks the bank is aware of.



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