Understanding the Standard Bank Confirmation

The attached bank confirmation form is a standardized form agreed between the Hong Kong Society of
Accountants and the Exchange Banks’ Association for obtaining the bankers’ confirmation for audit
purposes. A brief explanation on each item appearing in the form is given as follows: -

Item 1 Deposits, fixed or at call

(a) Fixed deposits

– Sums of money deposited for fixed terms at fixed rates of interest. Each deposit is
regarded as a separate contract and cannot normally be withdrawn before the end of the
term.
(b) Call deposits
– An account with which the customer can deposit funds and withdraws them as
required, subject to the required period of notice. Interest is calculated on a daily basis
on the cleared balance of the account.

Item 2 Saving accounts

- An account with which the customer can deposit funds and withdraw them as required,
with a passbook as identification. Interest is calculated on a daily basis on the cleared
balance of the account.

Item 3 Current accounts

- An account with which funds may be withdrawn on demand either by drawing cash by
cheque at the branch where the account is maintained or by writing cheques in favour of
another company or person. Current accounts should always be in credit unless
overdraft arrangements have been previously made with bankers.

Item 4 Loan account debit balance (excluding loans in connection with inward cargoes)

- Loan accounts are usually in respect of fixed sums advanced to the customer to be
repaid by fixed periodical repayments at interest rates at a specified margin over the
prime rate or other quoted rates.

Item 5 Accounts closed during the year to confirmation date

- This item should be self-explanatory.

Item 6 Advances to manufacturers and/or packing credit accounts and/or export loans
granted

- The most often encountered items under this section are packing loans. A packing loan is
granted to an exporter as part of an arrangement involving a letter of credit, and is to
enable the exporter to purchase raw materials to manufacture merchandise. The loan will
later be deducted against proceeds of bills negotiated under the L/C.


Now Hong Kong Association of Banks
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Item 7 Acceptances outstanding (Bill payable)

(a) Bills receivable by banker

- Bills of exchange accepted by the customer (importer) in favour of the banker.

(b) Goods released against Trust Receipt in respect of (a)

- Sometimes bankers are prepared to release documents before the maturity of a bill
of exchange against a trust receipt, which specifies that the customer undertakes to
hold the goods on behalf of the bank and to pay the proceeds of sale to the bank.

(c) Bills held by banker for collection

- Bills of exchange accepted by the customer (importer) in favour of the supplier
(exporter) who has given instructions to the banker to collect the proceeds on his
behalf.

Item 8 Partial payments held by banker

- This represents a partial settlement of the bills of exchange in item 7 (a) or (b).

Item 9 Irrevocable letters of credit

- A letter of credit (L/C) is an instrument issued by banker on behalf of customer,

(importer) authorizing the exporter to draw bills of exchange on the customer, the banker
or its correspondent banks for the account of the exporter, under certain conditions
stipulated in the credit. Most letters of credit are irrevocable which means that it cannot
be cancelled without the consent of all parties.

Item 10 Bills receivable by customer (Bill receivable)

(a) Bills purchased by banker (and outstanding at confirmation date)

- Bills of exchange drawn on importer by the customer (exporter) and negotiated to
banker i.e. Instead of collecting it himself, the customer sells it to the banker who may
have recourse against the customer.

(b) Bills held by banker for collection

- Bills of exchange drawn on importer by the customer (exporter) and sent to banker for
collection on behalf. The banker acts as an agent only.

Item 11 Marginal deposit held by banker

(a) On account of item 7 (Acceptances outstanding) and item 9 (Irrevocable letter of

credit).
(b) On account of item 10 (Bills receivable by customer) These items are self-explanatory.

Item 12 Loan granted in connection with inward cargoes

- The most often encountered items under this section are import loans. The customer
(importer) may be required to pay at sight of shipping documents and if he has import
loan arrangements the bank will settle the value of the goods for him by means of an
import loan for a fixed period.
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Item 13 Guarantees

(a) Given by banker on behalf of customer

(i) Shipping guarantees
- Sometimes when a shipment arrives via a short sea route, goods may be released
to the importer under a shipping guarantee given by the banker on his behalf
before shipping documents are received.

(ii) Others
- For example, in lieu of ( 代替) giving a utility deposit by himself the customer
may request the banker to issue a guarantee in favour of the utility company.

(b) Received by a banker on behalf of customer

- For example the holding company or a director of the customer may issue a
guarantee to the bank for the customer’s facilities.

Item 14 Foreign exchange contracts outstanding

- A forward foreign exchange contract is sometimes used by exporter/importer to hedge

against risks of exchange rate fluctuations in receipt/payment denominated in a foreign
currency. It is a contract whereby the banker agrees to buy/sell the foreign currency from
the exporter/importer at the date of receipt/payment at a certain fixed exchange rate.

(a) Customer’s sales to banker

- For example, the customer (exporter) contracts to sell US$10,000 to the bank at
fixed rate of $7.78 one month later, when he will receive sales proceeds in US
dollars.

(b) Bank’s sales to customer

- Opposite to (a) above.

Item 15 Other direct or contingent liabilities to banker

- This item should be self-explanatory.

Item 16 Securities and other documents of title held by banker

(a) Against facililties granted

- Share certificates, and title deed to properties are used as securities given to the
banker for banking facilities granted to the Company.

(b) For safe custody

- Sometimes share certificates and Certificate of Deposits are held by the banker on
behalf of the customer for safe custody purposes.

Note:
The above explanation of the items appearing on bank confirmation is based on general banking practice in
Hong Kong. It must be remembered that in actual situations, and for other countries, there may be slight or
significant variations in the banking practices and the accounting and auditing the implications may vary.

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Item No. Accounting Significance

1 Asset - Cash at bank

2 Asset - Cash at bank

3 Asset (if in credit) - Cash at bank

Liability (if overdrawn) - Bank overdraft

4 Liability - Bank loan

5 N/A --

6 Liability - Bank loan

7 (a) Liability - Bills payable

(b) N/A --
(c) Liability - Bills payable

8 Reduction of liability - Net off with bills payable

9 N/A --

10 (a) Contingent liability - Discounted bills

(unless it was specified that the bills
were purchased without recourse)
(b) Asset - Bills receivable

11 (a) Reduction of liability - Net off with bills payable

(if on account of item 7)
Asset (if on account of item 9) - Cash at bank

(b) Asset - Cash at bank

12 Liability - Bank loan

13 N/A --

14 Commitment - Commitment

15 Liability/Contingent liability - Various

16 (a) Asset and Security for liabilities - Various

(b) Asset - Listed investments and others