wht to check in Bank Reconciliation Statment of client.
What is the main logic behind checking of BRS while doing stat audit....
if possible pl try to explain with a example and also discuss how it can be checked...
ABHINANDAN JAIN (CA Student) (886 Points)
16 December 2011wht to check in Bank Reconciliation Statment of client.
What is the main logic behind checking of BRS while doing stat audit....
if possible pl try to explain with a example and also discuss how it can be checked...
Giridhar S Karandikar
(Team Lead)
(7543 Points)
Replied 19 December 2011
The main logic behind doing a BRS is to verify that the Bank Balance as per the clients Bank Book & that as per the Bank Statement is tallying.
There may be some cheques issued at the year end, which will be reflected in the clients Bank Book. But the same wud not be reflecting in the Banks’ Statement as they might not have been sent to the Bank for clearing. Similarly the client might have received cheques from its debtors, so it will appear in the clients Bank Book, but not in the statement.
So for this purpose you prepare a reconciliation, then Add/Deduct the cheques paid/ received from the balance & arrive at the balance as appearing in the Bank’s Statement. This is foolproof check for any errors that occur.
ABHINANDAN JAIN
(CA Student)
(886 Points)
Replied 19 December 2011
thxs for ur ans but i want to know that if cheques issued at the year end, then it will not reflect in bank statement.
But i think Cheques may clear and It may appear in subsequent period, whts the issue in this.
Is there any other consequences of issuing cheques at the year end..
Whether any fraud may involve in these cases, if yes then how...? pls prove..
Giridhar S Karandikar
(Team Lead)
(7543 Points)
Replied 20 December 2011
Please note that we ar required to match the balance between our books & the bank books as of 31St March. Since cheques issued would appear in the client#s books but not in the banks books, so the balance between the two books wud not tally as of 31 st march. So to match these balances we are requried to add/deduct the cheques paid/received & match the balance as per the bank's books. Also in case of cash the clinet is advised to deposit the cash as of 31st mar in the bank, & then again withdraw the ssame pn !st Apr, so that it can be proved that the cash appearing in the client's book is the real cash.
In this way while doing the reconciliation we can come to know if there are cheques/cash that are being done by way of fruad, & this can be foolproof check
CA PRABHAKAR JHA
(ACA)
(313 Points)
Replied 27 December 2011
ABHINANDAN JAIN
(CA Student)
(886 Points)
Replied 27 December 2011
thanks u so much for such a grt explanation.
From ur second para last two sentences
"It is possible that the entity might have prepared the cheques before the end of the year but not delivered them to the parties concerned. In such a case, examine that the entity has reversed the relevant entries."
I want to know wht will happen if client passes such kind of reversal enrties, Is this can be regarded as fraud...?
CA PRABHAKAR JHA
(ACA)
(313 Points)
Replied 27 December 2011
Originally posted by : ABHINANDAN JAIN | ||
![]() |
thanks u so much for such a grt explanation. From ur second para last two sentences "It is possible that the entity might have prepared the cheques before the end of the year but not delivered them to the parties concerned. In such a case, examine that the entity has reversed the relevant entries." I want to know wht will happen if client passes such kind of reversal enrties, Is this can be regarded as fraud...? |
![]() |
It will cause understatement of liabilities, financial statement may not exhibit the true and fair view, which is the major concern of statutory audit
Nithin Chettoor
(Assistant Manager)
(388 Points)
Replied 27 November 2012
The main purpose of verifying the Bank reconciliation statements is that we are using the Bank balance as per books of accounts in the financial statements andnot the balance as per Bank statement which is a third party external evidence. An auditor relies on external third party confirmations. Bank statement can be a third party evidence, bu the difference in the balances between the books and the bank statements are obvious. An auditor relies on the bank balance as per books after verification of the Bank reconciliation statements.
A bank reconciliation statement explains the differences between the balances as per books and the external evidence which is the bank statement. And merely having a copy of bank reconciliation prepared by the client does not make the auditor rely on it. We need to trace the reconciling items to the subsequent bank statements and ensure the genuinety of the reconciling items.
And there are chances of frauds by issuing cheques for huge amounts during the close of the year and cancelling the cheque later on to reduce the bank balance and the corrosponding liability to window dress the financial statement.
ABHINANDAN JAIN
(CA Student)
(886 Points)
Replied 27 November 2012
@ Nithin
now crystal clear..
but if client issues chques before 31ist march and we go to client within ist week of april say 3rd..in that case checking of reconcilitaion statement will become impossible as cheques will clear in due course of time..in such a situation we hv none other option except to relying on it..and if they issue cheque of huge amt and placed it with themselves without hand over to issuee..phir fruad kaise detect ho payega..
thank u so much..it seems u hv grt knowledge of auditing...
pls accept my frnd request..
Nithin Chettoor
(Assistant Manager)
(388 Points)
Replied 28 November 2012
Abhinand, thanks first of all.. and bank reconiliation is not verified by the reconciliation prepared by the client. It needs further verification with the subsequent bank statements. All the reconciling items should be of temporry nature and should have been subsequently cleared in a week or so maximum. So we need to trace the items in reconciliation to the subsequent bank statement, thereby ensuring that those are genuine. If the items are not subsequently cleared, there arise a question and deeper investigation into it may give a possibility of fraud or error or mstake, which needs to be adjusted in the bank balance as per accounts in the current period itself.
LIVE Course on Foreign Exchange Management Act (FEMA)(with recording)
LIVE Course on Foreign Exchange Management Act (FEMA)(without recording)