In
many cases, cash will not be a material item in the balance sheet and auditors
will, consequently, not carry out any detailed substantive checking work on
cash balance at the year end.
even if they
are relatively minor, as there is a high inherent risk of fraud in connection
with cash.
Auditors
should therefore consider the internal control aspect of cash transactions,
internal control objectives in dealing with cash receipts and cash payments,
where these are substantial part of the company’s business.
should therefore consider the internal control aspect of cash transactions,
internal control objectives in dealing with cash receipts and cash payments,
where these are substantial part of the company’s business.
As
far as the balance sheet audit is concerned, the auditor should also carry out
the following substantive checking work where the amounts are material:
far as the balance sheet audit is concerned, the auditor should also carry out
the following substantive checking work where the amounts are material:
·
Review the operation of the cash system. For petty cash this should be an
impress system which should be reviewed by a responsible official periodically
and the petty cash book initialled as evidence of review. For business which
deal in substantial cash amounts there needs to be a full control review.
Review the operation of the cash system. For petty cash this should be an
impress system which should be reviewed by a responsible official periodically
and the petty cash book initialled as evidence of review. For business which
deal in substantial cash amounts there needs to be a full control review.
·
If this is to be carried out the auditor must:
If this is to be carried out the auditor must:
·
Ensure they have control of all cash balance simultaneously to ensure
funds cannot be swopped from one to another.
Ensure they have control of all cash balance simultaneously to ensure
funds cannot be swopped from one to another.
·
Count the cash in the presence of an independent member of the client’s
staff to ensure that any shortages cannot be attributed to the auditor.
Count the cash in the presence of an independent member of the client’s
staff to ensure that any shortages cannot be attributed to the auditor.
·
List the individual details of notes and coins.
List the individual details of notes and coins.
·
Reconcile the count to the petty cash book and investigate any
differences.
Reconcile the count to the petty cash book and investigate any
differences.
·
Ask the cashier to initial the reconciliation as evidence of agreement.
Ask the cashier to initial the reconciliation as evidence of agreement.