1. Auditing & Investigations II
Audit of Cash and Bank Balance

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

3. 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

4. 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.

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

6. 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

7. 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

8. 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.

9. 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.

10. 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.

11. 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.

12. 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.

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

14. 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.

15. 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.

16. 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.

17. 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.

18. 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.

19. 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.

20. Thank you for your attention
End
Thank you for your attention