+TEST OF CASH

MANAGEMENT ASSERTIONS

CLASSES OF TRANSACTION

ACCOUNT BALANCES AT PERIOD END

PRESENTATION AND DISCLOSURE

CLASSES OF
TRANSACTIONs
OCCURENCE
COMPLETENESS
ACCURACY
CUTOFF
CLASSIFICATION
ACCOUNT BALANCES

AT PERIOD END
EXISTENCE

RIGHTS AND OBLIGATIONS

COMPLETENESS

VALUATION AND ALLOCATION

 PRESENTATION AND

OCCURENCE

COMPLETENESS
CLASSIFICATION

ACCURACY
PRINCIPAL OBJECTIVES WHEN AUDITING CASH
Assertion Category Account Balances Audit Objectives

All cash on the statement of financial position at a given

Existence date is held by the entity or by others (e.g. a bank) for the
entity

All cash owned by the entity at the reporting date is

Completeness included on the statement of financial position

Cash, including bank balances is stated at realizable value

Valuation and and agrees with supporting schedules
Allocation
The entity owns, or has legal right to, and has unrestricted
Rights and use on all the cash on the statement of financial position at
Obligation the reporting date

Cash, including bank balances is properly, described , and

Presentation and disclosed in the financial statements, including notes, in
Disclosure accordance with PFRS.
AUDIT
PROCEDURES
Sending confirmation to banks or financial
FOR CASH institutions

Conducting surprise cash counts

Obtaining and testing bank reconciliation and if

appropriate, preparing proof of cash

Obtaining bank cutoff statement and tracing bank

transfers

Performing cash cutoff tests

Checking the appropriate valuation of cash

Performing analytical procedures to assess the

reasonableness of reported cash
• Bank confirmations
-confirmation of the balances of the
company’s accounts with bank balances.

Some of the information the auditor asks:

1. Balances due to or from the bank, the letter may give the
account number, description and currency , and should
request information on nil balances and accounts closed
during the period
2. Terms and repayments conditions of loan and overdrafts
3. Collateral given, maturity and interest terms, unused
facilities, lines of credit and any rights of offset or other rights.
4. Assets held in safe custody and any encumbrances over
them
5.Contingent liabilities such as bills, acceptance, guarantees,
and endorsements
• Cash count
– Refers to the count of cash on hand which consists
of undeposited cash receipts, petty cash funds and
change funds.

1. Surprise cash count. Cash counts must be performed without the

custodian being informed in advance
2. Control all cash funds, including marketable securities and other
negotiable assets to prevent any transfers or substitution of floats to
hide discrepancies, until the completion of the count.
3. Count in the presence of the custodian to ensure the auditors
cannot be blamed for any shortage
4. List each item in the fund showing the denominations of notes and
coins
5. The custodian should sign the record as evidence of the return of all
funds
6. Agree the total to the cash book balance and investigate any
differences.
• Test bank reconciliation
-auditor obtains a copy of bank reconciliation
prepared by a client then after that:
1. Verify the cash balance used in the bank reconciliation:
a. Trace balance per books in the ledger, cash receipts and
cash disbursement journal
b. Trace balance per bank in the balance per bank
statement, reply to bank confirmation and cutoff bank
statement
2. Check the accuracy of the footing in the bank
reconciliation
3. Obtain supporting documents for any book and bank
reconciling items
4. Examine whether there is an adjusting entry to reflect
the book reconciling items.
• Proof of Cash
-additional audit procedure aside from
testing bank reconciliation

1.Cash receipts and disbursements recorded in the

accounting records but not on the bank statement
2.Cash deposits and disbursements recorded on
the bank statement, but not on the accounting
records
3.Cash receipts and disbursements recorded at
different amounts by the bank that in the
accounting records
• Tracing Bank Transfers
-auditor should trace transfer of funds from
one bank to another
The following should be observed when tracing
bank transfers:
1. Book entries for receiving and disbursing should
have been made within the same month
2. Book entries compared with the bank entries
may be made in earlier month but not later
month
3. The receiving per bank should not be in ealier
date than the disbursement per book
• Cash cut-off tests
-auditor should perform cut-off procedures on cash
receipts, disbursements and transfers to determine if these
transactions are reflected in the proper period.
When testing cutoff of cash receipts and disbursements at the
reporting date, auditor may:
1.Comparing deposits on the bank statements immediately
before and after the reporting date with entries in the cash
receipts journal to establish the reasonableness of the
deposits in transit at the reporting date.
2. Comparing the dates of the disbursement and receipt of
intercompany payments or interbank transfers immediately
before and after the reporting date to establish that both
receipt and disbursements were recorded in the proper
periods.
Cash valuation
-if the bank account being reconciled is in
foreign currency, the auditor should test the
conversion of cash balance to the presentation
currency to determine whether the cash is
stated at its realizable value.
• Analytical Procedures
• -includes comparison of financial data to obtain
of the reasonableness of the cash reported in
the financial statements.
1.Investigate any unusual fluctuations and
significant difference
2. Compare account balances with the preceding
year or years. Investigate significant changes in
amounts or deviations from trends.
3.Investigate accounts opened or closed during the
year.
4. Investigate credit balances to determine if they
represent actual bank overdrafts.
Special Audit Consideration
1.Bank Overdrafts arises when bank balances are overdrawn, it should be
reported as current liabilities and should not be netted to other accounts with
positive balance.
COA: Auditor should verify balance which is performing bank confirmations.

2.Kiting is an irregularity whereby an overstatement of cash created by a cash

transfer between bank accounts.
COA: The auditor may test the cutoff bank statement and trace bank
transfers.

3. Lapping is done by misappropriating collections from one customer and

concealing this defalcation by applying a subsequent collection made from
another customer.
COA: Bank confirmation, surprise cash count and comparing details of cash
receipts journal entries with the details of corresponding daily deposits
3. Window dressing is any deliberate misstatement
of the assets, liabilities, equity, income and
expenses. Usually accomplished by
a. recording as of the last day of the accounting
period collections made subsequent to the close of
the period.
b. Recording as of the last day of the accounting
period payments of accounts made subsequent to
the close of the period
COA: The auditor will ordinarily verify cash cutoff of
cash receipts and disbursements
Assertion Category Primary Audit Procedure

Existence Sending confirmation to banks or financial institutions

Surprise cash counts
Obtaining and testing bank reconciliation and preparing proof of
cash
Obtaining bank cutoff statement and tracing bank transfers
Cash cutoff tests

Completeness Obtaining and testing bank reconciliation and preparing proof of

cash
Obtaining bank cutoff statement and tracing bank transfers
Cash cut-off test
Valuation and Allocation Sending confirmation to banks or financial instructions
Surprise cash counts
Obtaining and testing bank reconciliation and preparing proof
of cash
Checking appropriate valuation of cash

Rights and Obligations Sending confirmation to banks or financial institutions

Surprise cash count
Obtaining and testing bank reconciliation and preparing proof
of cash
Obtaining bank cutoff statement and tracing bank transfers
Cash cut-off test

Presentation and Sending confirmation to banks or financial institutions

Disclosure Checking the appropriate valuation of cash