Auditing & Investigations II Audit of Cash and Bank Balance

Audit Objective of cash and Bank balance Key issues Audit Objective of cash and Bank balance Audits Assertions Audit test Confirmations

1. Introduction Cash and bank balance tend to high risk audit areas. Audit focus is on Petty Cash, Cash in Transit and Bank Balances The auditor need to diligent with audit procedures cash balances

Key Audit Objectives Petty cash floats and other amounts in hand exist and are intact. Cash in transit, relates cash received not banked. Cash banked agree with what is in the financial statement.

Key Cash Assertions Existence Completeness Rights and Obligations Valuation Presentation and disclosure

Audit Objective for Cash Financial Statement Assertion Audit Objective Existence Recorded cash balances exist at the period end Completeness Recorded cash balances include the effects of all transactions that have occurred Rights and obligations The entity has legal title to all cash balances shown at the period end

Continued……. Valuation Financial Statement Assertion Audit Objective Valuation Recorded cash balances are realisable at the amounts stated Presentation and disclosure Disclosures relating to cash are adequate and in accordance with accounting standards and legislation

Internal Control over Petty Cash Division of duties – the person(s) responsible for holding the cash float(s) should not also be involved in recording or authorising functions, or be responsible for replenishing the petty cash. Custodial functions – all float(s) should be kept under lock and key and covered by suitable insurance arrangements. Supervisory controls – all petty cash expenditure should be claimed on approved forms and countersigned before being disbursed.

Audit Procedures over Petty Cash and cash balances - Planning Count cash balances held and agree to petty cash book or other record: Count all balances simultaneously All counting to be done in the presence of the individuals responsible Enquire into any IOUs or cashed cheques outstanding for a long period of time.

Obtain certificates of cash-in-hand from responsible officials. Continued…. Obtain certificates of cash-in-hand from responsible officials. Confirm that cash balances as reconciled above are correctly stated in the financial statements.

Petty Cash and Cash Balance - Follow up Procedures Obtain certificates of cash-in- hand as appropriate. Verify unbanked cheques/cash receipts have subsequently been paid in and agree to the bank reconciliation by inspection of the relevant documentation.

Continued. Ensure IOUs and cheques cashed for employees have been reimbursed. Review whether IOUs or cashed cheques outstanding for unreasonable periods of time have been provided for. Verify the balances as counted are reflected in the accounts.

Bank Balance Audit of bank balances will need to cover completeness, existence, rights and obligations and valuation.

Audit Procedures over bank balance Division of duties – the persons who record cash payments and/or cash receipts should be separate from those concerned with custodial functions, and those who reconciles the bank account. Reconciliations are regularly reviewed by some responsible official who has no part in preparing them.

Audit Tests Tracing cash payments and receipts to cash book (bank), noting that cheques are entered in sequence and are presented without unreasonable delay. Tracing all contra items, stopped items, cancelled cheques, and noting the authority for the stopped or cancelled items.

Vouching transfers to the petty cash book and to other bank accounts. Continued. Vouching transfers to the petty cash book and to other bank accounts.

Continued test Testing casts and cross-casts of cash book. Test checking the reconciliation – tracing outstanding items into the succeeding period. Verifying bank cashbook balances with a bank report for audit purposes.

A confirmation letter is send to the bank. Key Audit procedure Bank balances are usually confirmed directly with the bank in question. A confirmation letter is send to the bank. ISA 505 External confirmations discusses the procedures to be followed.

Bank Confirmation – Key procedure issues Letter should be send to the bank authorizing conformation to third. Letter should be properly authorised. Returns should be send directly to the auditors. Where there are differences, the auditors should seek management representation.

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