The auditor shall verify the bank balances as follows:
Role of Auditor in verification of Bank Balance
1. The entries in the Cash Book and Pass book are to be compared.
2. The confirmation received from the banks as to the balances as on the last day of the accounting year is to be verified.
3. The Bank Reconciliation Statement prepared as on the last day of the accounting year is to be thoroughly examined.
4. The auditor shall also ensure that the cheques issued by the organization but not presented for payment and cheques deposited for collection but not yet collected are duly debited/credited in the subsequent period.
5. The auditor shall also carefully verify the post-dated cheques issued by the organization before the end of the year and ensure that such cheques are not taken into account for the year under audit.
6. It is possible that cheques are made by the organization before the end of the year, but not delivered to the parties. The auditor shall see to that the entries relating such cheques are reversed.
7. In the case of cheques in transit, the auditor shall verify such cheques are duly credited in the subsequent period.
8. Sometimes, due to legal restrictions / requirements, one or more of the bank accounts of the organization may be blocked, in such cases, the auditor shall ensure that the fact is disclosed in the balance sheet.
9. Some organizations may maintain large number of bank accounts, the auditor shall verify all the bank accounts thoroughly.
10. While verifying the Bank Reconciliation Statements prepared periodically by the management, there may be some items which are outstanding over a long period, the auditor may probe into such transactions and advise the management, if such items require any adjustments.
11. Some of the bank accounts may show the same balance as opening and closing balance, i.e., they may be apparently inoperative. The auditor shall obtain a statement from the bank to ensure, no operation took place during the year.
12. In case of fixed deposits or other deposits made with the bank, the auditor shall verify the deposit certificates.
13. If any charge is created on the deposits or if the deposits are made under any legal requirement, the auditor shall ensure that the fact is disclosed in the balance sheet.
14. With the intention of overstating / understanding the banks balances, the organization, with an understanding with creditors / debtors, may issue / deposit large number of cheques during the last few days of the financial year. In such circumstances, the auditor may verify thoroughly the cheques involving large amounts and obtain direct confirmation with the concerned parties.
15. If the audit is closed long after the end of the year, the auditor shall verify the reconciliation statements up to the date of audit.
In the case of companies, the deposits with the Scheduled banks should be shown separately and with regard to deposits with others, the nature of relationship of a director of the company or his relative with such other persons shall be disclosed separately. The nature of deposits, should also be mentioned separately.