Final answer:
An auditor will perform various audit procedures to test controls over bank reconciliations, including examining bank reconciliations against bank statements, verifying reconciliation items, inspecting internal policies, checking for unauthorized transactions, and assessing the staff's qualifications.
Step-by-step explanation:
An auditor tasked with evaluating a client's controls over bank reconciliations will likely engage in several key procedures to assess whether these controls are functioning effectively. To perform these audit procedures, the auditor might:
Examine the bank reconciliation statements prepared by the client, comparing them with bank statements and tracing to general ledger entries.
Inspect whether the bank reconciliations are being performed at regular and appropriate intervals (e.g., monthly).
Verify that all items noted in the reconciliations, such as outstanding checks or deposits in transit, are followed-up on and reconciled in subsequent periods.
Review the policies and procedures in place related to bank reconciliations to ensure they are comprehensive and followed by the staff.
Check for any unauthorized or unusual bank transactions by inspecting the reconciliation statements and related documentation.
Assess the qualifications and experience of the personnel responsible for preparing the bank reconciliations.
This hands-on review is part of ensuring that the client's financial statements reflect a true and fair view, especially concerning cash balances. Through such on-site reviews, auditors can gain reasonable assurance that the client's internal controls are effective and financial reporting is accurate.