With the ever-increasing complexity of the business, the importance and relevance of audits have increased over the years. Auditing is the independent examination of the financial statements of a company irrespective of its size or legal form, profit-oriented or not, in order to express a true and fair opinion thereon.
Collecting both internal and external balance confirmations is an integral part of an audit. Bank confirmations are standardized letters issued by banks confirming and entities account balances, loans, facilities, etc. with the bank. A bank confirmation also helps the auditor to determine any interest or charges accrued at the year-end. It helps in ascertaining the existence of any assets held by the bank. A bank confirmation can be obtained by the business at a charge varying from bank to bank.
The importance of bank confirmation can be drawn by looking into the Satyam Computers Scam case in India in 2009. It was a fraudulent case of window dressing by inflating assets including bank balance and understating the liabilities. The bank balances in the books of accounts did not exist, but it was supported by bank statements Mr. Ramalinga Raju (CEO and Chairman at that time) had manipulated.