The bank statement in an audit
The ledger says what the client is owed. The bank statement says what actually happened to the money. Read properly, it shows how close to the edge a business is running, and whether payments meant for you are going somewhere else.
On Business Audits · 7 October 2026 · 5 min read
Most of an audit tests documents the client has prepared: the ledger, the aged debtors report, the invoices. The bank statement is different. It is produced by the bank, it covers every day, and it is hard to make look better than it was. That is why it belongs in every audit, and why it often shows problems the ledger hides.
Start with the arithmetic
Before reading anything into a statement, check that it adds up. The opening balance, plus every receipt, less every payment, must equal the closing balance to the penny.
| Westbrook Joinery Ltd, current account, September | £ |
|---|---|
| Opening balance, 1 September (overdrawn) | (12,480) |
| Receipts in the month | 186,350 |
| Payments in the month | (179,920) |
| Closing balance, 30 September (overdrawn) | (6,050) |
An illustrative client.
If the figures don’t agree, something is missing: a page, a sheet of transactions, or a statement that has been edited. A statement that doesn’t reconcile should not be relied on for anything else until the difference is explained. Ask for the bank’s own PDF or, better, a download from online banking, rather than a printout or a scan of a copy.
Watch for overdrawn balances too. Banks print them in different ways: a minus sign, brackets, “D”, “DR” or “OD” beside the figure. Read one as a credit and every conclusion about the overdraft is wrong.
The overdraft picture
Taken day by day, the closing balances show how the business really manages cash. Four questions are worth answering for each account.
- How many days was it overdrawn? A business overdrawn every day of the period is living on its overdraft.
- Did it ever come back into credit? An overdraft that swings in and out of credit is being used for working capital. One that never clears has become permanent borrowing.
- What is the hardcore? If the account never returns to credit, the least it was overdrawn during the period is borrowing the business cannot repay from its own trading.
- Did it go over its limit? Days over the agreed limit, and returned payments, tell you the bank is already uneasy.
None of these is a reason on its own to stop funding. Together, and compared with the last audit, they show whether the client’s cash position is getting better or worse, and whether the facility is being used as intended.
Receipts that should have come to you
Under most facilities, debtors pay the financier, or pay into an account the financier controls. A receipt from a funded debtor into the client’s own account is a payment that should not be there.
There are innocent explanations. A debtor may pay to the old account out of habit, and many clients pass the money on promptly. But each such receipt is cash outside your control, and a pattern of them is one of the clearest signs that a client is under pressure. Diverting collections is often how a business bridges a gap.
To find them:
- List the funded debtors. Every customer on the funded ledger, including those in the top debtors table.
- Read every receipt on the client’s statements against that list. Banks abbreviate and truncate names, so “BRAMPTON RTL” may be Brampton Retail plc.
- For each match, look for the onward payment. A payment to you of exactly the same amount, shortly after, means the client passed it on. No such payment means it kept the money, or passed it on as part of a larger sum that needs explaining.
A remittance that bundles several receipts together cannot be matched by amount alone. It needs the client’s explanation and the remittance advice, not a guess.
Payments worth asking about
The other side of the statement matters too. Look for:
- Payments to directors beyond normal salary, especially when the account is overdrawn.
- Payments to related companies, which may be a contra hidden in plain sight, or money leaving the business.
- HMRC. Regular PAYE and VAT payments are a good sign. Their absence, or round-sum payments that look like a time-to-pay arrangement, is worth a question.
- Another lender. Payments to a finance company you have not been told about may mean other borrowing secured against the same assets.
What to ask for
Three months of statements for every account the business uses is a reasonable minimum: current accounts, any separate VAT or wages account, and card accounts if they are used for trading. Ask for them as downloaded PDFs, covering whole months, with no pages missing. A client that cannot produce statements for an account named on its own letterhead has told you something too.
Bringing it together
The bank statement completes the picture the ledger starts. A ledger that grows while the bank account gets steadily more overdrawn, receipts from funded debtors that stay in the client’s account, and a large HMRC payment that stops appearing: none of these shows on an aged debtors report. All of them show on the statement, for anyone who reads it a day at a time.