16 NOVEMBER

2018
AUDITING:
ASSIGNMENT # 02

Task: SELECT A PROCESS OF A COMPANY. DOCUMENT THE PROCESS AND

EVALUATE IT WITH LINKAGE TO THEORY.
COMPANY: ENGRO FERTILIZERS (EFERT)
PROCESS: BANK RECONCILIATION STATEMENT

PURPOSE AND SCOPE OF THIS PROCESS

Bank reconciliation statement is a process whereby a report which compares the bank balance
as per company's accounting records with the balance stated in the bank statement is
prepared; all the while passing through various controls.

The purpose of Reconciliations is to detect and prevent intentional fraud, along with errors by
bank tellers, accountants, employees and management.

It is normal for a company's bank balance as per accounting records to differ from the balance
as per bank statement due to timing differences. The scope of bank reconciliation is to
minimize the differences and elude the causes that are responsible for these differences.

PROCESS DOCUMENTATION
PROCESS OF BANK RECONCILATION
STATEMENT
INITIATE  The Treasury Department provides the
bank statements of all bank accounts for
a particular month to the Accounts
Assistant before 5th day of the following
month.
RECORD  A line-by-line comparison of the General
Ledger’s data and the Bank Statement is
conducted to identify any discrepancies
and mismatches and then recorded in the
reconciliation statement format.
 Entries existing in both documents are
crossed out thus not to be entered in the
Bank Reconciliation Statement.
CONTROLS OVER THE PROCESS & LINKAGE
TO ISA-315
 The banks timely send in the
statements; and if auditors require,
they can obtain external confirmation
from them as well.
 The bank reconciliation statement form
part of the internally-generated
information used by management for
measuring and reviewing financial
performance, which the auditor may
consider as well for review of entity
and its environment.
 The line-by-line comparison is a manual
process. Other source documents such
as Cash Receipts and Journal Vouchers
are looked up and referred to if
needed.

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PROCESS  The Assistant Accounts Officer prepares 
the Bank Reconciliation Statements for all
of E-FERT’s bank accounts.
 The responsibility of the preparer
extends only up to identifying the non- 
reconciliatory items, quoting the
reference to source documents and
recording them.
 Reconciling items from past month’s 
Bank Reconciliation Statement are
reviewed and included in the current’s
month Bank Reconciliation Statement if
still not cleared.
 In case of transactions related to fund
transfers, the Bank Reconciliation
Statements of the respective banks are
cross-checked.
 All remaining discrepancies are identified
in the relevant sections of the Bank
Reconciliation Statement which are
deposits entered in the Bank Ledger but
not appearing in the Bank Statement, like
Un-booked Bank Debits, Un-booked Bank
Credits, Un-presented checks.
REPORT  The Assistant Accounts Officer will 
prepare complete summary of bank
reconciliations & its outstanding items.
 The same will be forwarded to Accounts
Officer and Finance & Planning. Accounts
Officer will then review it and forward it
to the Accounting Manager latest by the
last day of each month.
 The Accounting Manager then forwards
this summary after review to the
Manager Finance and Planning and the 
CFO on the same day.
To understand the environment and
the nature of entity itself, the auditors
may conduct systematic walkthroughs
of the process of bank reconciliation.
The auditors may also check for
appropriate financial reporting policies
followed to assess material risk of
misstatement.
The Assistant Accounts Officer will
prepare and send the bank
reconciliations to Treasury. In case of
any delays pre-approval of General
Accounting Manager will be obtained
and intimated to Treasury.
The Auditor may undergo risk
assessment like Observation and
inspection which may support inquiries
of management and provide
information about the company and its
environment. For example, bank
reconciliation summary report
prepared by management could be
inspected, observed and analytically
examined to assess for risk.
When a new bank account is opened,
Treasury will intimate to Accounts
Officer and AAO, who will then start
preparing reconciliation of the new
account from the month in which
account is opened; which is an internal
control itself to monitor work of
subordinate employees.
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PICTORIAL OF PROCESS

Start of Process

Treasury department provides bank statements to Accounts

Assistant before 5th day of the following month.

Further
Checking of cash
Reference Yes
receipts and journal
needed?
vouchers.

No

Cross checking of funds transfer.

Remaining discrepancies are identified in

BRS.

Reviewing of
previous Do not include it in
Yes
reconciling items current statement.
is cleared?

No

Include the item in current BRS.

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 Preparation of BRS and send it to treasury department.

Preparation of bank reconciliation

summary.

Summary sent to accounts officer after reviewing. Then reviewed statement is

send to Accounts Manager.

Accounts manager
sends the statement
to CFO.

End of Process

EVALUATION
After a thorough evaluation of the Bank Reconciliation Process, we have established that the
bank reconciliation process of EFERT is overall an efficient control with the process not being
complex, but simplified, yet no compromise appears in the process’s efficacy. The methodology
is very detailed; each and every step is relevant to the authoritative person the Bank
Reconciliation Statements reach to, with just a few considerations to limitations (highlighted
below).

The Assistant Accounts Officer, AAO, is in charge of the manual process of line-by-line
comparison, in which only he identifies discrepancies and mismatches. And as this process is
manual and done by a single person, there might be a margin of human error, which is also the
inherent limitation of control, where the preparer has missed out on an item and there would
be no one to cross check that mistake; because internal control over processes, no matter how
effective, can provide an entity with only reasonable assurance about achieving the entity’s

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financial reporting objectives. Hence it’s recommended as per our observation that it would be
more suitable to have two Assistant Accounts Officers in charge of the manual work in order to
eliminate the margin of human error.

The controls over this process of bank reconciliation mainly depends over the review of
approval of senior management like Accounts Manager, Manager Financial and Planning, and
CFO hence it may not effectively be used if these individual responsible for reviewing the
information do not understand its purpose or fail to take appropriate action. So, if the Assistant
Accounts Officer, AAO, has missed out on any item then the Banking Section would not be able
to investigate the discrepancy. A mistake starting from the very first step may affect the whole
process till the end.

Additionally, these controls have the potential to be by-passed by the collusion of two or more
people in charge of reviewing or inappropriate management override of internal control.

Other than these limitations, none others were found. The process is very detailed and
stretched in such a way that the Statement goes through four steps where it can be checked for
errors. Also, the final summary is intimated to the CFO and Manager Finance by the next
month, indicating that the Bank Reconciliation Statement process is fast and is completed
within a month’s time period. Hence the CFO would be reviewing recent (just previous month’s)
Bank Reconciliation Statements, not very old ones. These controls may be enough steps to pick
out an error depending on the control environment and whether the controls over the process
are taken seriously and followed to its fullest productivity.