ACCA Audit and Assurance (F8) Practice Exam

The requirement for auditing bank balances involves obtaining a bank confirmation letter. This letter is a formal acknowledgment from the bank that provides independent verification of the client's bank account balances as of a specific date. It enhances the reliability of the financial information because it is sourced directly from the bank, ensuring that the auditor has accurate and up-to-date evidence of the amounts held in the bank accounts.

This process is critical in auditing because it helps confirm the existence and accuracy of cash balances reported in the client's financial statements. Additionally, bank confirmations can provide information about other relevant aspects such as outstanding cheques and loans that may affect the overall financial position.

While a verbal confirmation from bank personnel could provide some insights, it does not constitute a sufficient form of audit evidence due to its informal nature and susceptibility to misunderstandings or miscommunication. Internal financial statements from the client also do not provide the necessary independent verification required in an audit. Lastly, reports from previous auditors might offer contextual information but would be inadequate as primary evidence regarding current bank balances.