Audit Procedure For Bank Reconciliation
Bank reconciliation is the process of comparing a company’s accounting records for a cash account with the information on a bank statement in order to identify any discrepancies and make necessary adjustments.
By doing this regularly, companies can ensure accurate cash records and avoid issues like bounced checks or overdraft fees.
Furthermore, reconciliations can also help detect fraud and improve cash management controls. It is important for companies to perform regular bank reconciliations in order to ensure accuracy and reduce the risk of fraud.
Audit Bank Reconciliation
Examining financial records to ensure accuracy and completeness is an essential part of the audit process for bank reconciliation. In the context of a bank reconciliation, the audit process is conducted to ensure that all bank account transactions are accurately recorded in the internal ledgers, and that all discrepancies are properly investigated and resolved.
The following points must be considered during the audit process:
- Analyzing financial records, including bank statements, to ensure accuracy in accounting for all transactions.
- Investigating any discrepancies that may exist between the bank statement and internal ledgers.
- Verifying if the bank reconciliation process has been performed correctly and completely.
- Examining all supporting documents for accuracy and completeness.
- Ensuring that any unreconciled items are properly followed up and resolved.
Audit Procedure
The primary objective of an audit procedure for bank reconciliation is to ensure that the bank balance and the book balance are in agreement. To achieve this, an auditor must:
- Check the cash on the balance sheet.
- Review the bank statement.
- Confirm it with the bank.
- Compare the bank and book balances.
- Check the difference between the two balances.
- Investigate the reconciling items that could explain the difference.
CHECK CASH ON THE BALANCE SHEET
Comparing the cash book to the cash on the balance sheet provides an accurate assessment of the funds available. The auditor must ensure that the cash book records match the cash on the balance sheet. This includes verifying:
The balance of the cash book matches the balance of the cash on the balance sheet.
All deposits are correctly recorded in the cash book and on the balance sheet.
All withdrawals are correctly recorded in the cash book and on the balance sheet.
The auditor must also identify any discrepancies between the two records and take the appropriate corrective action.
BANK STATEMENT WITH BANK CONFIRMATION
Comparing the bank statement to the bank confirmation provides an accurate assessment of the financial records.
The bank statement shows all transactions that have been completed, while the bank confirmation verifies the account activity with the bank.
By comparing both documents, any discrepancies in the financial records can be identified.
For example, if the bank statement shows a transaction that the bank confirmation does not, this could indicate a data entry error.
It is important to reconcile items between the two documents in order to ensure accuracy and reliability.
In addition, verifying the bank statement with the bank confirmation will help to identify any fraudulent transactions that may have occurred.
COMPARING THE BANK AND BOOK BALANCE
The procedure for bank reconciliation begins with the comparison of the bank balance with the book balance. To complete the audit process, both the bank and book balances must be compared. This is achieved by analyzing the bank statement and bank confirmation.
The comparison of the bank and book balance is essential in the audit process. To ensure the accuracy of the bank balance, the auditor must compare the bank statement and the bank confirmation. This comparison should be done in a systematic manner and should be documented to ensure the accuracy of the audit. The following table outlines the steps in comparing the bank and book balance:
| Step | Description |
|---|---|
| 1 | Compare the bank statement and bank confirmation |
| 2 | Identify any discrepancies between bank statement and book balance |
| 3 | Make adjustments to the book balance based on the discrepancies |
CHECK THE DIFFERENCE
Analyzing the difference between the bank statement and bank confirmation is an essential part of the audit process. This process involves comparing the two documents in order to identify if there are any discrepancies that must be accounted for.
Auditors must then assess the reason for the difference and determine the impact it may have on the financial statements. In order to ensure accuracy, any discrepancies must be documented, analyzed, and corrected before the audit process can be completed.
As part of this process, the auditor needs to understand the cause of the difference in order to ensure that it is properly addressed. This could include reconciling outstanding checks, verifying deposits, or adjusting any other differences that may have occurred.
The auditor must also determine whether the difference is material or immaterial, as this will affect the financial statements. By performing a thorough review of the differences, the auditor can ensure that the financial statements are accurate and reliable.
INVESTIGATE THE RECONCILING ITEMS
The auditor must review all the reconciling items, including any notes or supporting documents, to ensure that the difference between the bank statement and the ledger is legitimate and properly justified.
A common audit procedure for bank reconciliation is as follows:
- Check the difference between the bank statement and the ledger.
- Investigate any differences, including any notes or supporting documents.
- Determine if the differences are legitimate and properly justified.
- Confirm the accuracy of the reconciling items.
CHECK THE APPROVAL ON BANK RECONCILIATION
Confirming the accuracy of the reconciling items requires the approval of authorized personnel. The level of authorization should be determined based on the complexity of the reconciliation. Generally, the higher the value of the reconciling items, the higher the authorization level should be. It is important to ensure that the authorization level is in line with the organization’s policies and procedures. For instance, if the bank reconciliation involves a large amount of cash, the approval should come from the senior-level management.
To ensure the accuracy of the bank reconciliation, it is also important to create an audit trail. The audit trail should document each step in the process, such as the date and methods used to complete the reconciliation. It should also include the name of the person who approved the reconciliation and the date of the approval. The audit trail should be kept on file for future reference and verification.
Objective of Bank Reconciliation
The objective of bank reconciliation is to identify and note any differences or timing discrepancies between the bank statement entries and the company’s general ledger.
This process helps to ensure accuracy and transparency in financial records, which is essential for the success of any business.
These differences could include outstanding payments or deposits in transit, which may have been recorded in the company’s general ledger but not yet reflected in the bank statement.
The bank reconciliation process helps to identify and highlight these discrepancies, ensuring that adjustments are made to accurately reflect the financial position of the company.
Benefit of Bank Reconciliation
Performing bank reconciliation provides a variety of benefits that help businesses succeed.
The primary benefit is that it identifies fraudulent activity, which can help to prevent mistakes and keep the account in good standing.
Bank reconciliation also helps with receivables tracking. This process allows businesses to quickly identify discrepancies between their records and the banks records, which can help to locate mistakes that might otherwise remain undetected.
Additionally, it ensures that all payments have been properly credited to the businesss bank account and that all charges have been properly debited from the account, allowing businesses to maintain accurate records.
Finally, bank reconciliation also helps businesses to ensure that all deposits have cleared the bank and that all outstanding checks have been cashed. By taking the time to reconcile the accounts, businesses can ensure that they are not missing any payment or being charged for any mistakes.
Conclusion
Bank reconciliation is a process used by businesses to ensure accuracy in the accounting records. An audit of the bank reconciliation is necessary to ensure that all amounts are accurate and accounted for.
The audit procedure consists of cross-referencing the bank statements with internal records, verifying all deposits and withdrawals, and making all necessary adjustments. The objective of the bank reconciliation is to ensure that all amounts are accurately recorded in the accounting records.