question archive 10-58     LO 8 The AICPA has developed a standard bank confirmation form to assure consistent communication with the banking community

10-58     LO 8 The AICPA has developed a standard bank confirmation form to assure consistent communication with the banking community

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10-58     LO 8 The AICPA has developed a standard bank confirmation form to assure consistent communication with the banking community.

a.       Is the auditor required to send a bank confirmation to banks from which the client receives a bank cutoff statement shortly after year end? Explain.

b.       What additional information is gathered through a bank con- firmation? Explain how the other information gathered is used on the audit.

c.       For each scenario in the following list (labeled 1.–3. below), recommend a substantive audit procedure or additional audit work that should be performed:

1.       The client has one major bank account located in a distant city, and the auditor is not familiar with the bank. The audi- tor has assessed control risk as high on this engagement. The mailing address of the bank is simply a post office box num- ber, but such a number is not considered unusual.

2.       The client has three accounts with its major bank. For two of the three accounts, the confirmation returned by the bank shows different balances from what the client shows. The balance per the client for one of the accounts is the same as the bank shows in the cutoff statement received from the bank shortly after year end. The auditor did not request a cutoff statement on the other account for which the confirmation differs.

3.       The returned confirmation shows a loan that the client does not list as a liability.

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