Auditing foreign bank accounts follows the same program as domestic cash, with four extra steps. You confirm the balance with a bank abroad, reconcile in the account's own currency, translate the balance at the year-end rate and check the exchange difference. You also ask whether the cash can leave the country and whether foreign account reporting was filed.
Confirming balances with a foreign bank
A confirmation from a foreign bank is the same evidence as a domestic one: the bank's own statement of the balance, sent straight to the auditor. What changes is the logistics. Foreign banks may use a different form, insist on a signed authority from the client, reply slowly or answer only through a central confirmations team. Start early.
Getting the request out
Identify the exact legal entity of the bank that holds the account and the address of the branch or department that answers audit confirmations. A large group often runs separate legal entities in each country, and a request sent to the parent may go nowhere. Ask the client's treasury team for their relationship manager's contact, then verify the address independently, using the bank's own website rather than a letterhead the client provides.
Many banks require the client's written authority to disclose information. Get it signed before you send the request, in whatever form the bank asks for. Requests in the bank's local language, or in a bilingual form, tend to come back faster.
When the reply does not arrive
Allow more time than for a domestic bank, and send a second request on a fixed date. If no reply comes, alternative procedures include examining the year-end statement obtained directly from the bank's online portal while you watch the client log in, and testing subsequent activity on later statements. Record why the confirmation failed and what you did instead. The confirmation is also your main support for the existence assertion, covered in the post on testing the existence of reconciled cash.
Which exchange rate translates a foreign bank balance?
A foreign currency bank balance is a monetary item, so it is translated at the closing rate: the spot rate on the balance sheet date. The difference between that figure and the amount carried in the ledger is an exchange gain or loss, normally recognized in profit or loss. Historical rates apply to the individual transactions, not the year-end balance.
The order of work matters. Reconcile the account first in its own currency, against the statement, with the same deposits in transit and outstanding items you would use for any account. Only once the currency balance is right should you translate it. Translating first and then reconciling mixes timing differences with rate differences and makes both harder to explain.
Check three things about the rate itself:
- Source. The client should use a stated, consistent source, such as a central bank reference rate or the rate published by its main bank. Agree the rate to that source.
- Date. The rate must be for the balance sheet date, not the last business day the treasury team happened to look.
- Direction. A rate quoted as dollars per euro and one quoted as euros per dollar give very different answers. Recompute one balance by hand to confirm the direction is right.
If the account belongs to a foreign subsidiary that reports in its own currency, there is a second translation when the subsidiary is consolidated. That step sits in consolidation, not in the cash audit, but the closing rate used for cash should be the same one used for the subsidiary's other monetary items.
A worked translation of a euro bank account
The worked example below takes a euro account held by a company that reports in US dollars. The figures are example values chosen for illustration, including the rate; use the rate from your client's stated source. The account has already been reconciled in euros against the bank statement and the confirmation.
| Line | Currency | Amount |
|---|---|---|
| Balance per bank confirmation, Dec 31 | EUR | 182,400.00 |
| Reconciling items (none at year end) | EUR | 0.00 |
| Adjusted currency balance | EUR | 182,400.00 |
| Closing rate, USD per EUR (example) | 1.0850 | |
| Translated balance | USD | 197,904.00 |
| Ledger balance before revaluation | USD | 195,310.00 |
| Exchange gain to record | USD | 2,594.00 |
Example values only.
The ledger balance of 195,310.00 is the sum of every euro transaction during the year, each booked at its own day's rate. Translating the closing euro balance at the year-end rate gives 197,904.00, and the 2,594.00 gap is the gain from the euro strengthening while the money sat in the account. The client books it as a debit to cash and a credit to exchange gains.
Test the gain for reasonableness. A large difference on a small, quiet account suggests a rate error or a transaction booked at the wrong rate. An exchange gain or loss that is suspiciously round, or one that exactly offsets another error, deserves a closer look.
Foreign bank statements in another language or layout
A statement in another language or layout is still a statement: it must foot, chain to the prior period and agree to the confirmation. The challenge is reading it. Learn the local words for opening balance, credit, debit and closing balance before you start, and confirm the date and number formats.
Date and number formats are the quiet risk. Many countries write the day before the month, so 03/04 is the 3rd of April, not March 4th. Many also use a comma as the decimal mark and a full stop for thousands, so 1.234,56 means one thousand two hundred thirty-four and fifty-six cents. A quick check on a few lines, against a running balance, shows whether you are reading the figures correctly.
Some foreign banks print the balance only at the end, or split a statement across several currencies in one document. Others show value dates beside booking dates, and the two can differ by days. Reconcile using the booking date the running balance follows, and note the value date for interest questions.
Clients often keep foreign accounts outside their main system. A property manager might reconcile its domestic accounts inside its property software and run a euro account in a spreadsheet. The guide to AppFolio bank reconciliation shows that domestic process, and a foreign account kept beside it needs its own reconciliation with the same sign-off.
Repatriation limits on foreign bank cash
Cash in some countries cannot be freely moved out. Exchange controls, central bank approvals, withholding taxes on transfers or a local legal requirement to keep a minimum balance can all restrict it. Cash that cannot be used for the group's general purposes may need separate presentation or disclosure, even though it exists and is fully confirmed.
Ask the client how they move cash out of each country and when they last did it. A company that has never repatriated from an account in years may not know whether it can. Read loan agreements and local subsidiary minutes for restrictions, and ask local management directly.
Look for restrictions in the bank's own documents, too. A confirmation may disclose that the balance is pledged, frozen or held as collateral. A deposit with a fixed term is cash-like but not available on demand, and should not be classified as cash on hand.
Is a small foreign bank account worth full audit work?
A small foreign account still needs enough work to show it exists and is not hiding anything, but the extent scales with materiality and risk. An immaterial account with steady, explainable activity may need only a confirmation and a translation check. The guide to setting audit materiality for cash explains how to decide.
Do not skip it because it is small. Small foreign accounts have been used to park cash outside the view of the main finance team. The risk rises when the account is in a jurisdiction where the client has little real business, when activity spikes near the period end, or when the signatories include people who do not normally handle treasury.
A client's internal audit team may already review foreign accounts as part of its own program. The post on internal audit of the bank reconciliation describes what that work covers and when external auditors can draw on it.
FBAR and other foreign bank account reporting checks
Foreign accounts often come with reporting obligations separate from the financial statements, and an audit should at least ask whether they were met. For US persons, including companies, the IRS explains that the FBAR is required when combined foreign account values exceed 10,000 dollars at any time during the year.
The IRS page on the Report of Foreign Bank and Financial Accounts says the report is FinCEN Form 114, filed electronically through FinCEN's BSA E-Filing System rather than with the tax return, and due April 15 with an automatic extension to October 15. Filing duties extend to anyone with signature or other authority over the account, not just the owner.
The financial statement auditor does not file the report, and an unfiled report is not a misstatement of cash. It can still lead to penalties that need to be considered as contingencies, and it is a sign that someone is not watching the foreign accounts closely. Compare the accounts listed on the filing with the accounts you confirmed. An account on one list and not the other is a question to put to management.
Foreign statements are where reading errors creep in: different date orders, comma decimals and multi-page layouts. PreciseBankFlow is built for most US checking, savings and credit card statements, so for a foreign account, foot each statement yourself before its lines are used; a misread number then shows up as a footing difference rather than a quiet error in the translation.