Bank confirmations There are two parts in a standard bank confirmation. Discuss the purposes and what would be requested by each component and to whom it would be sent
The standard bank confirmation is sent to each bank that the company has transacted business with during the year, whether it currently has a balance or not. Even though the cash balance is zero there may be loans or contingencies with a financial institution that require disclosure in the financial statements.
The first part seeks information on the client's deposit balances, on the existence of loans, due dates of the loans, interest rates, dates through which interest has been paid, and collateral for all loans outstanding with the bank at year-end. The second part seeks information about any contingent liabilities. If loans are outstanding the auditor normally asks for copies of contracts and checks them for loan covenants that restrict the ability of the organization to act freely. Frequently the entire loan becomes due and payable if the loan covenants are violated.
The auditor also usually makes inquiries about any cash management or other programs the client may have with the financial institution.
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