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Confirmation of bank balances is a critical process in audits—and one we’ve mastered for you.
A bank confirmation is a process that an auditor uses to ensure that the amounts of money in a person’s or company’s bank account match the numbers in its financial statements.
It is a type of audit procedure, and it is one of the most significant steps in any financial audit.
Because it is so important for checking proper balances and ensuring that transactions are recorded accurately, a bank confirmation should always be completed at the end of an audit.
All of the person’s or company’s principal accounts and subsidiaries should go through the bank confirmation process. This includes ensuring that general ledger balances match those in subsidiary ledgers and that cash numbers are correct.
Why is a bank confirmation important?
As a consumer, you should be aware of how critical it is to confirm that your bank account information corresponds to what is displayed on paper. The reason for this is that the data in an audit is supposed to mirror reality. Incorrect balances, misused funds, and even theft are examples of this.
Having said that, bank confirmations are an important aspect of audits since they help auditors ensure that the figures in financial statements match up with what is going on behind the scenes. The last thing you want to discover is that the money you believed was in your bank account is no longer there.
In short, as a consumer, a bank confirmation is necessary because:
- A bank confirmation letter is an official letter from your bank confirming the amount you deposited.
- Bank confirmations are required for tax purposes when applying for a mortgage or loan, and in the event of fraud.
- When you make major purchases or transfer funds, your bank will send you one of these letters.
- If there are any discrepancies, the bank will investigate and report back to you.
Bank confirmations for credit and loans
If you’ve ever applied for a line of credit, you’ve probably seen that some banks require a bank confirmation.
This is because they, like the rest of their risk management department, want to check that your financials are right before granting you credit.
Banks will ask you to obtain a bank confirmation before they disburse funds to guarantee that you are in good financial standing.
If any anomalies are discovered in the documents provided by the firm or individual, this might be an indicator of fraud and would prevent anyone from collecting their funds. As a result, auditors perform a bank confirmation to mitigate these risks as much as possible because they are critical for everyone involved.
Bank confirmations can also be used to show your identification if you ever need to apply for credit and need to prove who you are. This implies you may use your bank confirmation as paperwork to vote or even cash out certain credit card rewards.
What if discrepancies are found?
If discrepancies are discovered in a company’s bank accounts, the auditor must quickly contact management to establish how they occurred. This is because there could be various causes, and they need to determine what kind of influence it will have on the financial accounts.
Money from an individual or corporate account can become mixed up or misplaced, but this is still an issue that must be handled and remedied as soon as possible.
If major inconsistencies are discovered during the bank confirmation process, the auditor will need to do more detailed research into what actually occurred. This involves interacting with managers and individuals with financial access.
If a considerable sum of money is lost, it should be reported to the bank and/or the police department as soon as possible. This isn’t something that should be ignored because it could lead to further problems down the road if not addressed properly and immediately.
When inconsistencies are discovered in your bank account, the following five situations occur:
- Your bank will contact you with notifying you of a discrepancy in your account
- You’ll be given the option to close the account or transfer funds
- If you choose to close your account, it may take up to 10 days for any outstanding checks and electronic transactions to clear
- They might also send letters asking for more information about the discrepancy
- In some cases, if there is enough evidence that fraud has been committed, they can freeze an individual’s accounts until the investigation is complete
How do auditors conduct a bank confirmation process?
An auditor will normally contact the bank where a company has an account and request that specific balances be confirmed.
Before they are granted access to specific information, they must provide proof of identity, which includes having some sort of photo identification or a government-issued ID card on hand.
Auditors must also be able to demonstrate who they are and why they need to see the material to gain access. This means that auditors will need to have specific identification on hand whenever they do a bank confirmation, as banks take this topic extremely seriously.
Auditors conduct a bank confirmation by:
- First, verifying the bank’s financial statements
- Next, the auditor checks to make sure there are no inconsistencies in cash receipts and deposits
- Finally, the auditor will determine whether or not an audit report needs to be issued for that bank
- Auditors also conduct a confirmation process when they need to ensure that all records are accurate and up-to-date
- The whole process takes up to 2 weeks before it can be finalized
- It should take less than one week if everything goes smoothly at the beginning of the audit process
The auditor will next submit a bank confirmation detailing what was discovered during their inquiry into each of these accounts. The purpose is to determine whether or not there has been any misuse of funds and whether or not the individual or people responsible can be identified.
Then, the auditor reviews their findings with management before concluding whether they have reasonable assurance that a deliberate falsification in a company’s financial statements has been found. If not, they can provide an opinion on whether these records are fairly presented based on the facts acquired.
How to get bank confirmation on your credit card transactions
Anyone who wants you to verify that a certain amount of money is in your account can request a bank confirmation.
If you see anything out of the ordinary with one of your bank account balances, investigate it immediately to ensure that there is no internal or external theft at the organization. If not enough money has been transferred into and out of an account, or if something looks incorrect, this could indicate that funds are being held up by third parties for whatever reason.
The advantages of bank confirmation on credit card transactions
When you make a transaction and need to submit paperwork to vote or cash out certain perks, bank confirmations can be used as proof of identity.
This implies that if someone wants to validate whether or not you completed the purchase, they may do it simply by looking at your bank confirmation statement rather than trying other techniques that may be less dependable.
Bank confirmations can also help you in obtaining reimbursement from your insurance provider in the event that an internal or external theft occurs. This ensures that everyone engaged in whatever transpired receives their fair share and does not lose everything as a result of someone else’s irresponsibility.
They can also help prove that a certain amount of money has been transferred into an account.
Other advantages of bank confirmations include:
- Bank confirmation adds an added layer of security to your credit card
- The issuing bank verifies the transaction before sending it to the account holder’s bank for verification.
- If there are any inconsistencies, both banks will contact you right away.
- Merchants cannot charge more than what was authorized on your credit card without being detected by your issuing bank or the account holder’s bank using this confirmation process.
- Bank confirmation offers stronger security against fraud and overdraft fees.
- They can aid in the prevention of fraud and identity theft.
Tips to avoid paying unnecessary fees and penalties
Because most credit card services include bank confirmation with your transactions, you can avoid paying excessive fees and penalties by using this service. However, not all banks offer it as part of their offerings, so check to be sure the account you choose has it.
Five tips to avoid paying excessive bank confirmation fees and penalties:
- Understand the distinction between a bank statement and a bank confirmation.
- Make a habit of logging into your account regularly and reviewing transactions from the previous month.
- Send your monthly statements to yourself so you have them on hand.
- Update your contact information with any changes, such as a new phone number or email address.
- To keep track of your transactions and prevent late fees, use online banking.
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