Bank Letters for Audits

Bank Letters for Audits

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I am led to believe that failing to obtain a bank letter when auditing a set of accounts is a cardinal sin, punishable by excommunication, if not being burnt at the stake.  The trouble is that I have never received an audit letter from a bank which has not omitted a secondary bank account (you have to give them the details of the main one, so they cannot omit that balance) or omitted a security held by the bank on the client's assets.  It makes the bank letter useless as audit evidence and ends up with us having to ask the bank for amended letters.  The audit inspectors from QAD are perfectly aware of the situation, but if you don't have a correct bank letter on your audit file, their tick-box approach ends up with you being required to have external cold (if not, hot) file reviews.

My latest gripe is with one of the banks which we all still own.  We have a group where the subsidiary's freehold property has been mortgaged to the bank as security for a loan to the parent company (which it needed to buy the shares in the subsidiary).  When I queried the absence of any security being recorded on the subsidiary's bank letter, I was told that as the subsidiary had not borrowed the money from the bank, the security would not be shown on the subsidiary's bank letter, but they would amend the parent's bank letter to make it clear that the vague "fixed and floating charge" of the original letter included a reference to a fixed charge on the assets of the subsidiary.

Presumably, in the absence of any security being disclosed on the subsidiary's bank letter, I could not be criticised if the subsidiary's individual accounts do not include a secured debt note.  What do you think?

Replies (10)

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By Roland195
06th Aug 2014 16:50

Questionable value as evidence

Given the supposed point of the letter is basically to confirm there are no accounts, securities etc you are not aware of, it seems redundant when you have to spoon feed the bank the details you know should appear on the letter. I am sure my clients would be thrilled to know that the bank allegedly does not have any record of their loan or the security on it (although they manage to send them statements every month).

However, as you have stated it's an easy win for the QAD. I'm not sure how many drafts of the letter you should attempt before the correct one is obtained but anymore than three would make an absolute mockery of it.

There is also the rather obvious point that presumably any company up to shenanigans will have it's slush funds & bribes accounts with a different bank...

That said, I have had solictor's letters that make no mention of title deeds, ongoing litigation until you point out the fees raised for such things.  

  

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By TerryD
06th Aug 2014 17:13

I understand your point, but I'm surprised the bank omitted that info - I've generally found it to be there, along with intra-group cross guarantees. I can't recall the exact words on the request letter though. However, I think QAD would expect an auditor to search Companies House for details of any charges on the company's assets - I bet the bank has filed it there.

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Replying to lionofludesch:
Euan's picture
By Euan MacLennan
07th Aug 2014 09:55

Indeed

TerryD wrote:

I think QAD would expect an auditor to search Companies House for details of any charges on the company's assets - I bet the bank has filed it there.

... which proves my point that an audit letter from a bank is useless in itself.  We already know the account balances from the statements and we are expected to search Companies House and/or Land Registry for charges, so a bank letter should not be required by auditing standards as no reliance can be placed on it.

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By martinscutt
07th Aug 2014 10:20

My last bank audit letter

Had the wrong balance on. It was within £800 on a very large balance but still required some additional hassle of getting hold of someone at the bank and having another sent out. 

This is not the first time, also seen missing accounts, missing overdraft facilities and missing securities and guarantees,

It is tiresome telling the bank what it should have put on the letter, not least because they do not feel the need to talk to mere mortals and I can only assume that by the time you end up in that department in a bank you have lost all hope of a decent career.

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By TerryD
07th Aug 2014 12:07

Essentially agree with Euan

Even more useless when you consider that the one piece of audit evidence that the bank could provide, and for which management representations is the only alternative procedure, is details of directors' guarantees - and that is excluded from the bank letter!

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paddle steamer
By DJKL
07th Aug 2014 12:21

If directors' guarantees in place

 

If directors' guarantees are in place then these days they are often mentioned in the facility letter the bank has issued (certainly the ones I have seen in recent years) so management representation is not the only way to confirm these as reading the Security part of the facility letter may also confirm the position.

 

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By andrew1211
08th Aug 2014 12:08

If you don't get a bank letter but put a schedule on file fully explaining why not, and what other procedures you have done to be sure the balances are right, security known about/disclosed etc. then this is fine, especially if you have deemed the whole thing to be low risk, which it ought to be.
 

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By Briar
08th Aug 2014 12:17

Thank God I am no longer a registered auditor!

When I, was I recall having an strong argument with the QAD that my file on the procedures for verifying the bank balances by accessing them using online banking were as good if not better than obtaining a letter from the bank which showed the (wrong in many cases!) balance. It was in the early days of online banking and QAD did not have an answer - but I was not excommunicated.

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By robwstokes
08th Aug 2014 16:37

Name change

We have also now had a bank we part own decline to issue a bank audit letter as the authority held is now in the previous name! This information was sent to us as the auditors from an email address that was for the previous name, got to love them.

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RLI
By lionofludesch
08th Aug 2014 16:44

Happily, I don't do this audit nonsense any more.  I wouldn't go so far as to say that they were all totally inaccurate but the banks certainly ought to be ashamed of the quality of their work.

But - hey - we all have a low opinion of bankers.   That's not rhyming slang, is it ?

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