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Audit Procedure for Bank Reconciliation: Procedure, Risks, and Assertions

Steps to Audit Bank Reconciliation Statements

If you can't see the reason for the errors you've found, keep looking until it's clear. Balance sheet reconciliations and tests are some of the key tasks performed during annual audits. Customer reconciliations are performed by businesses which offer credit terms to their customers. Bank reconciliation can be categorized into three primary types, each serving distinct purposes and addressing different aspects of financial management. You can view the status of the reconciliation in the summary table, which is located at the top right of the page.

Make journal entries for these adjustments and review the final reconciled balance to confirm that the records align. For smaller companies, it’s common to reconcile bank statements during the monthly or quarterly close process. However, there are situations where a bank reconciliation might be necessary at the earliest. For example, if a business identifies any suspicious activity or unidentifiable transactions, it’s essential to prepare a bank reconciliation immediately. Similarly, if customer payment checks on the balance sheet do not match bank records, a cross-check is necessary. Bank reconciliation involves comparing a company's internal financial records with those provided by the bank.

Types of reconciliation

This step ensures that each transaction’s details, like the sender and amount, are accurate and helps detect any false bank statements. Completing a bank reconciliation entails matching the balances on your bank statement with the corresponding entries in your accounting records. The process bank reconciliation can help you correct errors, locate missing funds, and identify fraudulent activity. Bank reconciliation statements compare transactions from financial records with those on a bank statement. Where there are discrepancies, companies can identify and correct the source of errors.

Steps to Audit Bank Reconciliation Statements

The frequency of reconciling bank statements depends on the size and complexity of the business and its transaction volume. For larger companies with a high volume of transactions, it’s advisable to reconcile bank statements daily to ensure that any discrepancies or errors are identified and corrected promptly. After accounting for outstanding checks, if your bank reconciliation still shows discrepancies, it indicates there are bank adjustments not yet recorded in your General Ledger (G/L). Common adjustments include service fees, overdraft fees, and interest income, which must be recorded in the G/L to finalize the reconciliation. As you fill in these details, the "Ending Balance" at the bottom will serve as a summary point, where you will reflect the adjusted balances after accounting for any differences. This systematic approach helps in identifying and rectifying discrepancies efficiently, ensuring that your financial records accurately reflect your true financial position.

What Are the Causes for Bank Reconciliations & a General Ledger Not Balancing?

The deposit could have been received after the cutoff date for the monthly statement release. Depending on how you choose to receive notifications from your bank, you may receive email or text alerts for successful deposits into your account. Once solved, be sure to adjust your records to reflect deposits as needed. The reconciliation statement allows the accountant to catch these errors each month.

Yes, auditors examine bank statements closely as they are key in tracking financial information and verifying transaction accuracy. Business decisions rely on financial information, but hidden inefficiencies and intentional misbehavior can blur the picture. Audits act as financial clarifiers, reviewing bank statements to detect red flags.


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