ACCA AA Syllabus D. Audit Evidence - Bank & Cash - Notes ^{15 / 18}

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