## Verification of Bank Reconciliation Statement (BRS)

A Bank Reconciliation Statement explains differences between the bank book balance (per the entity's books) and the bank statement balance. Verifying the BRS is a key audit procedure for cash and cash equivalents.

### Pre-condition

The BRS must be signed by authorised personnel — this assigns responsibility for any errors found.

### Three Types of Reconciling Items and How to Test Them

Type 1: Cheques Issued but Not Yet Presented (Outstanding Cheques)

Trace each cheque to the underlying bank book entry.
Obtain subsequent bank statements — check if cheques cleared.
Stale cheques (>3 months old): Must NOT appear in BRS. They should be reversed and reclassified as liabilities (creditors).

Type 2: Cheques Deposited but Not Yet Credited by Bank

Obtain bank deposit slips (duly acknowledged by bank).
Verify credits in subsequent bank statements.
Cheques not cleared beyond reasonable time: Seek explanation from management. If unsatisfactory, review revenue recognition for the related party.

Type 3: Amounts/Charges Debited or Credited by Bank but Not Recorded in Books

Obtain bank statements for the audit period.
For material items: insist management records adjustment entries before finalising accounts.

### Tying It Together

```

Balance as per Bank Statement

+ Cheques issued but not presented

− Cheques deposited but not credited

± Errors and unrecorded items

= Balance as per Bank Book

```

Worked example

### Example 1

Scenario (CA D): A company does not use net banking. It issues cheques to creditors and receives account payee cheques from debtors. The BRS shows a cheque of ₹3,50,000 issued on 15 October as outstanding, but the audit date is 10 February (nearly 4 months later).

Audit Action:

This cheque is stale (>3 months). It should not remain in the BRS.
The company should reverse the book entry: Debit Bank, Credit Creditors (or Liability).
If still unpaid, it represents an unclaimed liability, not a reconciling item.
Auditor should insist on this reclassification before signing off.

### Example 2

Scenario: A cheque of ₹5,00,000 received from a major customer was deposited on 28 March but shows as not credited by the bank as at 31 March, and also has not cleared by the time of audit (2 months later).

Audit Action:

This is a red flag — a cheque that hasn't cleared in 2 months may indicate the customer's cheque was dishonoured or the deposit was fictitious.
Request explanation from management.
Review revenue recognised for this customer — was it appropriately recognised per the company's revenue recognition policy?
Verify the bank deposit slip is genuine and bank-acknowledged.

⚠️ Common exam mistakes

Accepting a BRS that is not signed by authorised personnel — without a signature, accountability cannot be assigned.
Not checking subsequent bank statements — this is the primary way to verify whether outstanding items have cleared.
Allowing stale cheques (>3 months) to remain as reconciling items instead of requiring reclassification to liabilities.
Ignoring uncleared deposits — these can indicate window dressing or fictitious sales.

Reference:

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