Auditing bank balances: what to check on the statement itself

Cash and bank is usually the first balance-sheet item a junior is handed, on the reasoning that it is the easiest to verify: get the statement, get the certificate, tie it to the ledger, done. That reasoning is why it is also where a surprising number of problems survive an audit.

This is a working checklist for the bank side of a statutory or tax audit — what to obtain, what to test, and the specific ways a bank statement can be wrong or incomplete while still looking entirely ordinary.

Why the easy item deserves a checklist

Two things make bank verification quietly risky. The first is that the evidence usually arrives as a PDF from the client rather than from the bank, so its provenance is weaker than it feels. The second is that the work is delegated early — to whoever has least experience of what a doctored or partial statement looks like.

Neither is an argument for suspicion. They are an argument for running the same few tests every time, so that nothing depends on somebody noticing.

What to obtain, and from whom

• Statements for the whole period, for every account — including accounts opened or closed mid-year, which is where gaps hide.
• A bank confirmation obtained by you, sent to and returned from the bank directly. A confirmation routed through the client is a different kind of evidence, and much weaker.
• The closing balance certificate for every account, including fixed deposits, overdraft and cash-credit accounts.
• The list of authorised signatories, and any change to it during the year.
• Details of any lien, charge or encumbrance on balances or deposits.

The arithmetic test, first

Before comparing anything to the ledger, check that the statement is internally consistent. Every bank statement prints a running balance, and that column is a chain: the previous balance, plus the credit, minus the debit, must equal the balance printed on that row. Every row, no exceptions.

This is worth doing first because it is the one test that needs no other document and no judgement. If a row has been removed, altered, or simply misread while re-keying, the chain breaks at that row and the difference is the amount involved. A statement that fails this test should not be reconciled to anything until you know why.

The checklist

What hides in a clean-looking statement

Three failures survive a casual read, and all three are worth looking for explicitly:

• A missing page. Nothing on the remaining pages looks wrong. The balance chain still breaks at the join, which is why the arithmetic test comes before anything else.
• A re-typed statement. A PDF produced from a spreadsheet rather than by the bank. Check the document properties: a statement generated by a bank's system rarely reports Word or Excel as its producer.
• The wrong account. More common than fraud and easier to miss — a statement for a similar account number, or for a period that overlaps rather than continues.

There is a longer treatment of these in how to check whether a bank statement is genuine.

What goes in the working papers

Whatever you checked, record that you checked it and what the result was. For the arithmetic test that means the number of balance links verified and any exceptions, not merely a tick — a reviewer six months later cannot tell the difference between “checked and clean” and “not checked” from a tick alone.

If you convert statements with BankXL, each file carries that line already, and you can download a one-page certificate stating how many balance links were verified and how many passed. It goes in the file as evidence of the test, not as an opinion about the statement.