Question

Bank Confirmations

Bank confirmations are critical to the cash audit. What information does the auditor obtain by sending bank confirmations? Explain the different types of bank confirmations and what assertions each type addresses. How do you determine which is the best bank confirmation type to use?

Answer 1

A bank confirmation letter is a letter from a bank confirming the existence of a loan or a line of credit that has been extended to a borrower.

There are two forms of confirmation -

1. Positive Confirmation- That is a request to provide a response to the auditor, whether or not the customer agrees with the receivable information listed in the confirmation.

2. Negative Confirmation- This is a request to contact the auditor only if the customer has an issue within the confirmation.

This is a less robust form of evidence, since there is an inclination by customers to not contact the auditor, which leads to the presumption by the auditor that customers agree with the presented accounts receivable innformation.