Bank & Cash 15 / 18

Bank balances and cash are easily checked

However, they are at risk from misappropriation and fraud

Hence, they normally have strong internal controls, such as a bank reconciliation from bank statements to the cash book

Main Risks & Assertions

  • Rights and obligations and Existence assertions
    Bank balances not actually owned by the client

  • Valuation assertion
    Reconciliation differences incorrectly dealt with

  • Completeness assertion
    Material cash balances are omitted

Confirmation of Bank Balance

Direct confirmation to the auditor from the bank

  • Method 1
    The auditor gives the balances from the client’s accounting records and asks the bank to confirm

  • Method 2
    The auditor asks for the balance (not giving the bank the balance first)

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  • Miscellaneous points about the bank confirmation letter

    • Client must give permission to the bank to reply

    • Should be in a standard format acceptable to the bank

    • The authorisation could be a standing authority - this must be referred to in the letter

    • The letter is sent from the auditor (and the reply back to auditor)

  • What's in the letter?

    Confirmation of:

    • balances on all bank accounts

    • any unpaid bank charges

    • any liens (charges) over clients assets

    • any client assets held as security

    • any other bank accounts known but not listed

  • When auditor receives the reply

    The following work is performed:

    • Get the bank reconciliation

    • Check for arithmetical accuracy

    • Check bank letter against balance used in bank rec

    • Use letter for other audit areas eg. Bank charges accrual

    • Check all bank rec items against supporting evidence (eg Unpresented cheques in later bank statements)

    • Review cashbook and statements for unusual items

    • Review letter for any other information (eg Loan Security)

Cash Balances - The Count

  • The auditor should count cash at all locations at the same time (to prevent moving cash around)

  • Counted in the presence of a company official

  • A signed receipt from the official, stating the cash returned after the count by the auditor

  • Check cash counted to cash records and cash balance in SFP

  • See how money advances to employees are accounted for