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Question 4
Which of the following audit procedures included in the audit programme
tests for the EXISTENCE of bank and cash?
A. Attend the cash count at the year end and reperform the count
B. Review all relevant bank statements to verify that the accounts are held under
the name of Walker Co
C. Agree a sample of account balances detailed on the bank confirmation letters
to the trial balance
D. Review the disclosure included in the financial statements to verify only bank
accounts per the bank letters are disclosedHi, My question is for option C ; I don’t understand how you agree a sample of acc balances from BCL to trial balance? because Trial Balance is the total balance from the ledger after balancing the debit and credit for an account, how do you agree just a “sample” to the total amount of an account?
because if it’s just a sample, it’s not 100% ; but the amount in trial balance is showing 100% …. isn’t it an unfair testing ?
and next question is relating to option D ; what does it mean actually? only accounts per the “bank letters ” are disclosed? do the “bank letters” here mean ” Bank Confirmation Letters ” ?
and why doe it have to be only bank accounts per the bank letters are disclosed?
Please can you remember to give a source of the Q you are querying – in case I need to refer to the original.
First let me comment on the Q itself – “EXISTENCE”. This means we are looking at $xxx amount for an asset/liability (or equity) in the the SoFP and asking does this asset/liability exist at the reporting date? For any physical asset, the best evidence is the auditor physically inspecting/counting it on the last day of the reporting period. So A is the correct answer and it this point you could disregard the distractors.
C. First ignore what it means and just look at the “direction” of the test – it is FROM an external source outside of the client’s accounting records TO the TB (which forms the basis of the FS) – therefore this is a test of completeness.
Now to your question – note the plural “balances” and “letters” i.e. there is not just one bank account and one confirmation letter – the audit client has lots of bank accounts (e.g. current/deposit/loan) with different banks – so more than one confirmation letter. I agree it would be usual for the auditor to 100% check all accounts on all confirmations to their respective balances on the TB, but if there were lots of them, they could be agreed on a sample basis.
Yes “bank letter” is same as “bank confirmation letter”. I confess I don’t know why this would be a test included in the audit programme because under IFRS there would be no requirement to disclose all the individual current/deposit accounts that make up “cash at bank”, but in any case it is describing a test of presentation, so is not relevant to existence.
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