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Developments in the audit of bank and cash

The purpose of this article is to provide feedback from a series of interviews with practitioners from a wide range of firms, training providers, and staff at the UK Financial Reporting Council (FRC) and ICAEW’s Quality Assurance Department (QAD) about their experiences of the audit of bank and cash.

Until now, the base-line work on bank and cash for many UK firms interviewed has generally involved: 

Most interviewees questioned the value of bank confirmations, however, particularly in relation to the confirmation of balances. They pointed to a decline in the value of bank confirmations as audit evidence in recent years, particularly as a result of the requirement to provide account numbers which compromises completeness testing. Interviewees were divided regarding whether bank confirmations identify balances not recorded. Some were adamant that this never happens, others maintained that the bank confirmation is more likely than the Internet to show unrecorded balances, others again thought it depends on the bank. Accounts are often set up in names that are not quite the same as the entity’s name and auditors often spend time getting banks to confirm the details of accounts they already know about. Interviewees noted that the work involved in simply getting confirmations right was often excessive. They suggested that, as in other areas, the approach should involve first considering whether an external confirmation is needed, based on the risk assessment, and then considering the need for additional or alternative procedures.