The purpose of preparing a bank reconciliation statement on a monthly basis:
- Such a reconciliation is useful in ensuring the completeness and accuracy of the bank balance as appearing in the ledger. By reconciling the cash book balance to the bank statement transactions that have not been captured in the cash book such as interest charged/earned will be highlighted and subsequently recorded. In addition any errors made in recording transactions in the ledger will also be identified and corrected.
- Such a reconciliation will highlight any fictitious transactions that have gone through the bank for example fraudulent payments which have not been captured in the cash book will be identified;
- The reconciliation will also highlight any errors that might have been made by the bank such as debiting the accounting with a larger amount than was paid out. Such errors can then be followed up with the bank.
Testing the operation of this control
- I will inquire whether the reconciliation‘s are indeed prepared on a monthly basis;
- Inspect a sample of the reconciliation‘s and confirm that they are indeed prepared on a monthly basis and that there if evidence of review by a senior responsible person;
- Inspect a sample of the reconciliation‘s to confirm that they are accurately prepared, the reconciling items are promptly cleared and that there are no unexplained variances.