Non receipt of bank balance confirmation certificate
This query is : Resolved
28 October 2012
In the case of a Sinagapore based subsidiary of an Indian Parent company, during the course of statutory audit of subsidiary by Singapore based auditors, it was observed:
1.It’s the first year of operation of the company;
2.there are no multiple bank accounts rather there is a single bank account;
3.books of accounts of the company are properly maintained;
4.bank balances are properly reconciled on a monthly basis,in fact there are no pending entries even as per a single monthly reco,i.e.bank balance as per books & state are duly tallied;
5.all such recos are duly provided to statutory auditors;
6.full bank statements are also provided for audit;
7.not satisfied with above, auditors even themselves verify the transactions appearing in bank statements through online mode (with clients user id & pass);
Even after above, finally auditors decided to qualify the audit report merely due to non-production of bank balance confirmation certificate from bank with following remark:
The company has cash at bank of US$52,483 as disclosed in Note 4 to the financial statements
as at 31 March 2012. During the course of our audit and up to date of this report, we were
unable to obtain the bank confirmation. In this regard, we were unable to obtain sufficient
appropriate audit evidence and carry out alternative procedures to satisfy ourselves on the
existence, accuracy and valuation of the balance and possible effects on the financial
statements had we obtained the bank confirmation.
In my personal opinion:
1.obtaining the bank balance confirmation certificate from bank is one of the audit procedures & merely non-receipt of such certificate can not make the balance in doubt when all other evidences are available regarding its existance;
2.Even in case of sundry Debtors, Creditors & other balances with third parties, it’s a standard point to put in audit report that-“balances of sundry debtors & creditors are subject to confirmation from parties.”
Above point is much lesser impactful than specific qualification written in present case.
3.such qualification not only places the question over the client, but also with the Bank & even the auditors themselves as despite of so many evidences, they are unable to form an opinion whether such balance is existing with bank or not.
4.such uncalled qualification may be taken very seriously by the investors, financers of the company under audit.
Thus, based on above, such qualification should be avoided.
PL COMMENT ON ABOVE.
1.It’s the first year of operation of the company;
2.there are no multiple bank accounts rather there is a single bank account;
3.books of accounts of the company are properly maintained;
4.bank balances are properly reconciled on a monthly basis,in fact there are no pending entries even as per a single monthly reco,i.e.bank balance as per books & state are duly tallied;
5.all such recos are duly provided to statutory auditors;
6.full bank statements are also provided for audit;
7.not satisfied with above, auditors even themselves verify the transactions appearing in bank statements through online mode (with clients user id & pass);
Even after above, finally auditors decided to qualify the audit report merely due to non-production of bank balance confirmation certificate from bank with following remark:
The company has cash at bank of US$52,483 as disclosed in Note 4 to the financial statements
as at 31 March 2012. During the course of our audit and up to date of this report, we were
unable to obtain the bank confirmation. In this regard, we were unable to obtain sufficient
appropriate audit evidence and carry out alternative procedures to satisfy ourselves on the
existence, accuracy and valuation of the balance and possible effects on the financial
statements had we obtained the bank confirmation.
In my personal opinion:
1.obtaining the bank balance confirmation certificate from bank is one of the audit procedures & merely non-receipt of such certificate can not make the balance in doubt when all other evidences are available regarding its existance;
2.Even in case of sundry Debtors, Creditors & other balances with third parties, it’s a standard point to put in audit report that-“balances of sundry debtors & creditors are subject to confirmation from parties.”
Above point is much lesser impactful than specific qualification written in present case.
3.such qualification not only places the question over the client, but also with the Bank & even the auditors themselves as despite of so many evidences, they are unable to form an opinion whether such balance is existing with bank or not.
4.such uncalled qualification may be taken very seriously by the investors, financers of the company under audit.
Thus, based on above, such qualification should be avoided.
PL COMMENT ON ABOVE.
28 October 2012
Your auditor's are correct in making the qualification because certain bank charges will be debtied and they make transfers for any pending loans even in the next month statement. Getting certificate from bank is not a difficult procedure and since it is simple non submission will create doubts whant number of documents you present. Since the certificate is not produced your auditor's qualification is perfectly right and they have discharged their duties with due deligence and care.
28 October 2012
thanks for the reply,
but sorry to disagree for following:
1.all the bank states are available & supplied to auditors & balances are duly reconciled;
2.what subsequent transactions client /bank does after the period of audit has no relevance to bank balance as on 31-3-12 (audit period).these are not going to alter the bank balance as on 31-3-12.
& for kind info,there are no such pending loans,its a simple current account without any credit facilities,so pl keep the diss limited to applicability without any hypothetical theroies.
but sorry to disagree for following:
1.all the bank states are available & supplied to auditors & balances are duly reconciled;
2.what subsequent transactions client /bank does after the period of audit has no relevance to bank balance as on 31-3-12 (audit period).these are not going to alter the bank balance as on 31-3-12.
& for kind info,there are no such pending loans,its a simple current account without any credit facilities,so pl keep the diss limited to applicability without any hypothetical theroies.
03 August 2024
Your situation regarding the audit qualification due to the non-receipt of a bank balance confirmation certificate raises valid concerns. Here's a detailed analysis and commentary on your points:
### **1. Importance of Bank Balance Confirmation**
**Audit Standards and Procedures:**
- **Standard Audit Procedures:** According to auditing standards, obtaining a bank confirmation is a standard procedure to verify the existence and accuracy of bank balances. This procedure is crucial for providing assurance about the cash balance reported in the financial statements.
- **Audit Evidence:** While you have provided substantial evidence such as bank statements, reconciliations, and online transaction verifications, auditors might still require a formal bank confirmation as it provides direct confirmation from an independent third party (the bank).
**Reasons for the Qualification:**
- **Audit Assurance:** The qualification may arise from the auditors’ need to adhere strictly to auditing standards which mandate direct confirmations from banks to ensure the reliability of reported balances. Even if other evidence supports the balance, the absence of a confirmation might be seen as a gap in audit assurance.
- **Auditors' Responsibility:** Auditors are required to obtain sufficient appropriate audit evidence to form an opinion. If they are unable to get a bank confirmation, they might feel they cannot fully substantiate the balance as per auditing standards.
### **2. Commentary on Your Points**
**a) Availability of Bank Statements and Reconciliations:**
- **Evidence Sufficiency:** While it is true that you have provided comprehensive evidence including bank statements and reconciliations, the absence of a direct confirmation from the bank can still lead to a qualification. The auditors’ reliance on direct confirmation is a standard procedure to ensure completeness and accuracy.
- **Reconciliation Validity:** Proper reconciliation and timely updates in bank statements certainly strengthen the case, but they do not completely substitute the need for a formal bank confirmation.
**b) Relevance of Subsequent Transactions:**
- **Relevance to Audit Period:** You are correct that transactions after the audit period (i.e., beyond 31 March 2012) do not affect the balance as on that date. However, the bank confirmation is still required to validate the balance at the end of the period in question.
- **Current Account Nature:** The fact that it is a current account without credit facilities simplifies the situation but does not negate the requirement for a confirmation as part of standard auditing procedures.
**c) Qualification Impact and Perception:**
- **Impact on Perception:** Indeed, an audit qualification can impact the perception of the financial health of a company. Investors and financiers often take qualifications seriously as they reflect on the reliability of financial reporting.
- **Auditors' Role:** The auditors are expected to ensure that all standard procedures are followed, and their inability to obtain a confirmation despite other evidence might be perceived as a lapse in audit procedures.
### **3. Remedies and Actions to Consider**
**a) Follow-Up with Bank:**
- **Persistent Efforts:** Continue to follow up with the bank for the confirmation. Sometimes, delays can be due to administrative issues. Document all communication efforts with the bank.
**b) Alternative Audit Evidence:**
- **Additional Evidence:** Consider providing additional alternative evidence or explanations to the auditors to reinforce the existence and accuracy of the bank balance. This might include more detailed transaction histories or additional attestations from bank officials.
**c) Dispute Resolution:**
- **Engage in Discussion:** Discuss the matter with the auditors and provide a detailed response addressing why you believe the qualification may be unwarranted. Show them the comprehensive evidence already provided.
**d) Formal Request for Review:**
- **Formal Appeal:** If the qualification impacts the company significantly, you might consider filing a formal appeal or request for a review of the audit qualification with the auditors or relevant professional bodies.
**e) Corrective Measures for Future:**
- **Procedural Improvements:** For future audits, ensure that all possible confirmations and required documents are obtained well before the audit to prevent similar issues.
### **Summary**
- **Bank Confirmation Importance:** Despite the comprehensive evidence provided, the bank confirmation is a crucial standard procedure for auditors.
- **Qualification Impact:** The qualification might arise from adherence to audit standards, even if other evidence is strong.
- **Remedies:** Continue to seek the bank confirmation, provide additional evidence to auditors, and engage in discussions to resolve the issue.
Your situation highlights the importance of adhering to standard audit procedures and ensuring all necessary confirmations are obtained to avoid audit qualifications.
### **1. Importance of Bank Balance Confirmation**
**Audit Standards and Procedures:**
- **Standard Audit Procedures:** According to auditing standards, obtaining a bank confirmation is a standard procedure to verify the existence and accuracy of bank balances. This procedure is crucial for providing assurance about the cash balance reported in the financial statements.
- **Audit Evidence:** While you have provided substantial evidence such as bank statements, reconciliations, and online transaction verifications, auditors might still require a formal bank confirmation as it provides direct confirmation from an independent third party (the bank).
**Reasons for the Qualification:**
- **Audit Assurance:** The qualification may arise from the auditors’ need to adhere strictly to auditing standards which mandate direct confirmations from banks to ensure the reliability of reported balances. Even if other evidence supports the balance, the absence of a confirmation might be seen as a gap in audit assurance.
- **Auditors' Responsibility:** Auditors are required to obtain sufficient appropriate audit evidence to form an opinion. If they are unable to get a bank confirmation, they might feel they cannot fully substantiate the balance as per auditing standards.
### **2. Commentary on Your Points**
**a) Availability of Bank Statements and Reconciliations:**
- **Evidence Sufficiency:** While it is true that you have provided comprehensive evidence including bank statements and reconciliations, the absence of a direct confirmation from the bank can still lead to a qualification. The auditors’ reliance on direct confirmation is a standard procedure to ensure completeness and accuracy.
- **Reconciliation Validity:** Proper reconciliation and timely updates in bank statements certainly strengthen the case, but they do not completely substitute the need for a formal bank confirmation.
**b) Relevance of Subsequent Transactions:**
- **Relevance to Audit Period:** You are correct that transactions after the audit period (i.e., beyond 31 March 2012) do not affect the balance as on that date. However, the bank confirmation is still required to validate the balance at the end of the period in question.
- **Current Account Nature:** The fact that it is a current account without credit facilities simplifies the situation but does not negate the requirement for a confirmation as part of standard auditing procedures.
**c) Qualification Impact and Perception:**
- **Impact on Perception:** Indeed, an audit qualification can impact the perception of the financial health of a company. Investors and financiers often take qualifications seriously as they reflect on the reliability of financial reporting.
- **Auditors' Role:** The auditors are expected to ensure that all standard procedures are followed, and their inability to obtain a confirmation despite other evidence might be perceived as a lapse in audit procedures.
### **3. Remedies and Actions to Consider**
**a) Follow-Up with Bank:**
- **Persistent Efforts:** Continue to follow up with the bank for the confirmation. Sometimes, delays can be due to administrative issues. Document all communication efforts with the bank.
**b) Alternative Audit Evidence:**
- **Additional Evidence:** Consider providing additional alternative evidence or explanations to the auditors to reinforce the existence and accuracy of the bank balance. This might include more detailed transaction histories or additional attestations from bank officials.
**c) Dispute Resolution:**
- **Engage in Discussion:** Discuss the matter with the auditors and provide a detailed response addressing why you believe the qualification may be unwarranted. Show them the comprehensive evidence already provided.
**d) Formal Request for Review:**
- **Formal Appeal:** If the qualification impacts the company significantly, you might consider filing a formal appeal or request for a review of the audit qualification with the auditors or relevant professional bodies.
**e) Corrective Measures for Future:**
- **Procedural Improvements:** For future audits, ensure that all possible confirmations and required documents are obtained well before the audit to prevent similar issues.
### **Summary**
- **Bank Confirmation Importance:** Despite the comprehensive evidence provided, the bank confirmation is a crucial standard procedure for auditors.
- **Qualification Impact:** The qualification might arise from adherence to audit standards, even if other evidence is strong.
- **Remedies:** Continue to seek the bank confirmation, provide additional evidence to auditors, and engage in discussions to resolve the issue.
Your situation highlights the importance of adhering to standard audit procedures and ensuring all necessary confirmations are obtained to avoid audit qualifications.
You need to be the querist or approved CAclub expert to take part in this query .
Click here to login now
Click here to login now
Similar Resolved Queries
Unanswered Queries
- Is this income indian or foreign income?
- 15ca /15cb whose income tax login? remitter or nri seller's login?
- TDS U/S. 194NF
- ITC temporary reversal and reclaim
- Regarding Documentation & Compliances for Opening of Unit of Pvt Ltd.
- RCM applicability on Rent Paid by Registered Person to Unregistered Landlord for Residental Building
- GST on export of services and Input Credit
- Applicable TDS rate for sale of property in Nov 2024
- Can we claim ITC of Feb-2024 in the month of November-2024 which was not claimed by oversight
- REGARDING 25 AS DATE OF PAYMENT AND DATE OF BOOKING
- Credit profit and loss account in case of bonus share received
- How to determine cost of acquisition of shares on De-merger or Merger
- LAST YEAR 2022-23 ITC IN NEXT YEAR 2023-24 REPORITNG IN GSTR-9
- MIS MATCH OF INVOICE NUMBER
- IGST Credit-Show cause notice issued-confusion
- Issue of gst e invoice
- How to adjusted advances given or receipt
- Foreign vendor without PAN unable to to register due to non receipt of OTP on foreign number ?
- 133(6) DIN INVALID format error - ->WHERE TO REPLY 133(6) notice?
- Query for dubts
Trending Online Classes
CAclubindia
