Wednesday, June 13, 2007

#5 Practical Audit Tips- Lesson 1: Cash & Bank


Cash & Bank balance stands as an asset of the company, and is one of the important element of balance sheet. The primary assertions we concerned are: valuation, existence, right & obligations. From the assertions listed, we are more concerned about the overstatement of the asset.

Generally, the audit works involved, including:
1. Analytical Procedure (compared the difference between prior year figure to current year figure)
2. Cash Book Review
3. Obtaining confirmation from respective banks
4. Bank Reconciliation Review
5. Petty Cash count

1. Analytical Procedure
Knowing the fluctuations of the cash balances, one would be able to gauge a general idea of
what had happen during the year. For instance, a purchase of machine would probably incur
a general layout ( assumption: XYZ company paid by cash), a sales of its equity shares, so on
and so forth.

As a starting ground, we would like to know the profit incurred during the year, adjusted for
non-cash items, such as: depreciation. Then, we start to taken in other cash effect
transactions. In short, analytical procedure give you a general idea about what you would
expect during the rest of the course of audit.

2. Cash Book Review
Obtaining a cash book transactions listing ( cash-in and cash-out), to examine the nature of
the transactions. The objective is to ensure that the cash transactions are within the ordinary
course of business.

3. Obtaining bank confirmation
External evidence, in this case, are more reliable than internally-generated sources. Send a
a bank confirmation to the respective banks to confirm the balance.

4. Bank Reconciliation Review
Sometimes, the company might have long outstanding reconciling items, which might
signals the issues of blank cheque. Hence, bank reconciliation review would help you to
be aware of those long reconciling items.

5. Petty Cash count
Restaurants, hotel might maintain a huge amount of petty cash on hand. A petty cash count
is essential to ensure the correctness of the balances.


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