Bank - Cash and Bank Balances

The major concern in this area is to establish the existence of the balances and more currently due to failures in some financial institutions in US valuation of these balances. The client wills creates a reconciliation of the bank statement and the cash book.  These are checked through the auditor paying specific attention to the reconciling items.  These should be original reconciling items.  Unpresented cheques and uncleared lodgements should show on the bank statements early in the New Year, say inside two weeks of the year end.  Whether they do not appear, after that these should be investigated as fraud or manipulation could be indicated.  Material Unpresented cheques could show that the bank balance is being distorted for balance sheet reasons as a high balance is showed of poor use of cash and may reflect adversely upon the directors.  Uncleared lodgements present a much more serious threat of distortion or fraud.  Therefore Banks usually clear lodgements within a week, if after a week we have uncleared lodgements such are not up country, cheques, after that the position displayed may be probably fictitious.  They could have been inserted through an employee or through management to conceal a shaky liquidity position to conceal a misuse elsewhere.

Bank reconciliation is a routine subject, what remains are for the auditor to contain direct confirmation from the bank confirming the balances on the year end.  The main reason of this bank certificate is to confirm such the bank statements are not fraudulent.  The bank ask for a copy of that is given as an appendix at the finishing of this chapter must be made through the client for the auditor has no right to get this information from the client's bankers.  The reply must though go directly to the auditors.  The usual procedures are in fact for the client to write to the bank authorising the bank to give the auditor along with any information such the auditor may require.  Along with this authority, the auditor then writes to the bank.