Audit bank confirmations: why the auditor may ask the bank directly

During a statutory or voluntary audit, the auditor may seek independent confirmation of bank balances and other banking arrangements directly from the financial institution. The purpose is not to replace the company's own statements, but to obtain external audit evidence about cash, debt, guarantees and other relationships that may not be fully visible in the ledger.

External bank confirmation can provide independent audit evidence

ICAEW notes that UK auditors can use external bank confirmations as part of their response to assessed audit risk under ISA (UK) 330 and ISA (UK) 505. The decision to request confirmation is a matter of professional judgement rather than an automatic requirement for every audit.

The confirmation can support evidence about account balances, loans and other banking arrangements. Because the response comes from the bank rather than management, it can provide stronger evidence where the auditor is concerned about completeness or existence.

The request can cover more than current-account balances

ICAEW says bank confirmations can include information relevant to trade finance, guarantees and third-party securities in addition to normal cash balances and borrowing. A group with letters of credit, merchant guarantees or multiple facilities can therefore receive a more detailed confirmation request than a small company with one current account.

Finance should provide the auditor with a complete list of banks and relationships. Hiding an unused overdraft or dormant account from the audit schedule can create more work later if the bank reports it independently.

The company usually needs to authorise the bank to respond

Banks will not normally disclose confidential company information to an auditor without appropriate authority. Follow the auditor's confirmation process and sign the required consent using a director or authorised bank signatory.

Do not edit the bank's reply before it reaches the auditor. The strength of the evidence comes from independent transmission. If management disagrees with an item in the bank response, explain and reconcile it separately rather than asking the bank to omit it.

Start confirmations early because bank response times can affect audit completion

Audit teams often request confirmations around the year-end reporting cycle, when banks can be handling many similar requests. If the company needs signed accounts for a lender, investor or filing deadline, late confirmation can become the critical path.

Agree the bank list and authorisations with the auditor before year end where possible. Check that signatories remain current. A request can stall if the director who must authorise it left the company and the bank mandate was never updated.

Investigate every difference between the bank confirmation and company records

The bank may confirm a balance that differs from the ledger because of timing, currency conversion, accrued interest or a reconciliation error. Loans can differ because finance recorded only principal while the bank reports interest or fees separately.

Do not force the ledger to the bank number with a generic adjustment. Reconcile the difference to statements and facility documents. The audit value comes from explaining why the two records differ and identifying whether the company's books need correction.

Use the audit process to improve the permanent banking register

After the audit, maintain one register of bank accounts, loans, guarantees, merchant facilities and security. The annual confirmation exercise often reveals forgotten accounts or old guarantees that were never removed from internal records.

Review the register when accounts are opened, closed or refinanced rather than rebuilding it once a year. That makes future audits faster and also improves treasury oversight because management can see the full banking relationship outside the year-end process.

Before authorising the confirmation, reconcile the company's own bank register to the general ledger and debt schedule. If management already knows that a £2 million guarantee is missing from its internal records, correct the schedule before the auditor receives the bank response. External confirmation should test completeness, not become the first inventory of the company's financial relationships.

For groups, list accounts by legal entity and banking group. A parent-company finance team can easily omit a subsidiary account it does not operate day to day. The auditor's confirmation process is smoother when each entity's directors and signatories are known and the requested bank relationship can be authorised without last-minute corporate approvals.

Include accounts that had no year-end balance if they remained legally open or supported another facility. A zero-balance current account can still have an overdraft, guarantee or security relationship that matters to the financial statements. The audit bank list should therefore come from the relationship register, not only from accounts with cash at year end.

Where electronic confirmation platforms are used, verify that the request is routed through the auditor's approved process rather than responding to an unexpected email that merely looks like an audit request. Bank confirmations contain sensitive borrowing and account information, so authorisation and destination controls matter as much as speed.