Audit Program - Cash

EASTERN VISAYAS STATE UNIVERISTY
COLLEGE OF BUSINESS AND ENTREPRENEURSHIP

ACCOUNTANCY DEPARTMENT
TACLOBAN CITY
AUDIT PROGRAM – CASH
ASSERTIONS Audit objective

Existence Recorded cash balances exist at the period-end
Recorded cash balances include the effects of all
Completeness
transactions that have occurred.
The entity has legal title to all cash balances shown
Rights and obligations
at the period-end.
Recorded cash balances are realizable at the
Valuation
amount stated.
Assertions relating to
presentation and disclosure
(classification and Disclosures relating to cash are adequate and in
understandability, occurrence accordance with accounting standards and
and rights and obligations, legislation.
accuracy and valuation,
completeness)
Main area of focus:
1. Types of bank account and facilities provided by bank.

2. Bank reconciliation to identify any adjusting entries.
3. Bank confirmations
4. Petty cash count and cash certificate for the year end balance of cash in hand.
5. Subsequent position of cheques that were not cleared in the year end.
6. Test of control over bank payments, petty cash payments and bank receipts.
Audit procedures in details:
1. Get a clear understanding about the processes and procedures that the organization
applies. To audit Cash and Cash Equivalents, get a clear idea about the bank accounts,
types of bank accounts, number of bank accounts, purpose of each bank account, banking
facilities arrangements and agreements, overdraft facilities, bank guarantees,
Authorized signatories, authorization matrix, bank payment process, bank receipt
process, petty cash payment process and petty cash top up process, daily petty cash
holding limit.
2. Send confirmation letters to banks to ensure year-end bank balances from a third party.
Usually all the CA firms have their own letter formats for bank confirmation. Bank
confirmations are sent by the Auditor, requesting the bank to disclose the information
directly to the auditor. In a Bank confirmation letter, both the auditor and the client
will sign. The client’s authorized signatories will sign in the bank confirmation letter
in order to authenticate the auditor’s request. The bank confirmation letter will have
to be printed in Audit firm’s letterhead. So the task is simple. Request the client to
give their bank account details, name of the contact persons in the bank, get the
contact details of the banks, prepare the confirmation letters for each bank (not for
each bank account. An organization might have several bank accounts in a single bank
and usually the banks disclose the information related to all bank accounts and banking
facilities arrangements that the client have with them), request the client to sign the
confirmation letters and send them to the banks. Remember, sometimes client might ask
to handover the bank confirmation letters to them and might suggest that they will send
the confirmation letters for the auditor’s convenience. Sometimes the client may insist
that they will collect the confirmation letters from the bank and will send it to the
auditor by claiming that they have good relationship with the bank and the bank will
feel comfortable to send the confirmation letters directly to the client. In the above
circumstances, do not allow the client to send the confirmation letters to the bank or
to ask them to collect the confirmation letters. It is the responsibility of the
auditors to send the confirmation letters directly to the bank and ask the bank to
confirm the balances directly to the auditor. If the bank does not send the balance
confirmation letters, arrange a conversation with the bank officials and if possible,
send the confirmation letters in scanned copy through e-mail.
3. Now, the bank will confirm the balances as per their record and it is usual that the
amount the bank confirmed will not match with the organization’s bank book balances.
Here, the auditor will need to reconcile the bank statement balances with the bank book
balances. Usually, the client will prepare bank reconciliations on a monthly basis. But
the auditor will have to re-perform the bank reconciliation at least for two months
including the last month of the accounting period under audit. If after re-performing
bank reconciliation, the auditor can confirm the accuracy of the record of the bank
book, next thing to do is to cross match the amounts with the figures that bank confirmed
via bank confirmation letter. Identify if there are any adjusting entries that are yet
to be reconciled and reconcile them.
Disclaimer: Nothing in this material intends to violate any rights. This is prepared solely for educational purpose.
EASTERN VISAYAS STATE UNIVERISTY
COLLEGE OF BUSINESS AND ENTREPRENEURSHIP
ACCOUNTANCY DEPARTMENT
TACLOBAN CITY
4. After re-performing the bank reconciliations, check whether the “Reconciling Items”
have been subsequently cleared or not. To do this, collect the bank statements of post
year-end period. Pick the Items that were not cleared in the year-end and check if they
were subsequently cleared. If not, inquire to the management.
5. If auditing before the end of the accounting period, the auditor must attend during the
physical cash count in the-year end. Collect a cash certificate from the client and
sign off worksheet as well by the client. In addition to that, check the control on
petty cash balances, by conducting a surprise cash count.
6. To test whether controls are working effectively over bank payments and petty cash
payments, perform a control test on sampling basis.
7. Collect the list of authorized signatories (which was submitted to the bank) and match
it with the authorization matrix.
8. Check the overdraft balances with the bank accounts. Make sure that overdraft balances
are reflected in the balance sheet as current liabilities.
9. Inquiry about fixed deposits, ensure fixed term deposit status (for interest rate and
amount) from bank confirmations. ( A fixed term deposit for less than 3 months, will
be considered as “Cash and cash equivalents)”
10. Collect copies of insurance policy coverage for “Cash in transit” and “Burglary &
housekeeping,” company’s policy regarding payments made by cheque and petty cash payment
limit.
11. If there are any foreign currency bank account exists, confirm that appropriate
exchange rate is used for the presentation of foreign currency account balances in the
financial statements.
12. When it comes to recognize interest income, make sure that interest income is
properly accounted for in accruals basis instead of cash basis.
DISCLAIMER: This is not a standard procedure. This is just a sample. Audit procedures may vary depending on the client under audit and the auditors
performing the audit. Source: https://www.linkedin.com/pulse/how-audit-cash-equivalents-basic-procedures-sabbir-ismail/
Disclaimer: Nothing in this material intends to violate any rights. This is prepared solely for educational purpose.

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EASTERN VISAYAS STATE UNIVERISTY

COLLEGE OF BUSINESS AND ENTREPRENEURSHIP

ASSERTIONS Audit objective

Main area of focus:

1. Types of bank account and facilities provided by bank.

Audit procedures in details:

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