Bank and Cash
1 Bank balance
Match the procedure to the item being audited. Bank confirmations, statements and reconciliations support cash balances and banking arrangements. They do not by themselves test the measurement, interest or classification of a loan. Follow the noun in the requirement.
The amount of cash at bank and/or bank overdraft is one of the most straightforward balances in the statement of financial position to audit. Almost certainly the auditor will write it to the client’s bank to obtain a 'bank report for audit purposes' ('bank certificate'). The bank certificate will certify the amounts in the various accounts of the client and it should also tell the auditor about any security which the bank has for overdrafts and for loans, together with details of any assets which the bank is holding on behalf of the client, such as share certificates. It should also show any accrued interest or bank charges.
The auditor will make sure that the amount in the client’s bank ledger account ("cash book") agrees with the amount on the statement of financial position and will perform or reperform a bank reconciliation as evidence that that amount of cash is correct. In reperforming a bank reconciliation the auditor will:
Agree the balance per the bank statement to the bank certificate.
Agree uncleared ('outstanding') deposits and unpresented cheques to the next month's bank statement to confirm that they have 'cleared' the banking system.
Confirm that the balance per the bank statement as adjusted for reconciling items (essentially timing differences) agrees to the client's bank account balance in the general ledger and statement of financial position.
2 Cash in hand
If the client has a material amount of physical cash, for example if the client runs a chain of shops each with a cash float, then at least some cash counts will be carried out to confirm the existence and accuracy of the cash balance at the reporting date.
Even if balances are not material, the auditor may routinely count cash because of the relatively high risk of theft. Where petty cash/a float is controlled using an imprest system (i.e. cash + authorised vouchers = imprest balance), the auditor may carry out tests of controls on the authorisation of vouchers and replenishment of the float during an interim audit.
Bank and cash
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