- This topic has 1 reply, 2 voices, and was last updated 3 years ago by Kim Smith.
January 24, 2019 at 1:38 am #503149toushiga
- Topics: 424
- Replies: 172
Hello Sir, I have some inquire for the substantive procedure for verifying the cash and bank balance
Below are some extract from the answers:
1)”Trace all unpresented cheques through to a pre year-end cash book and post year-end statement. For any unusual amounts or significant delays obtain explanations from management to confirm
accuracy & valuation and completeness”
=Can the obtaining the explanation from the management is to confirm the existence and not completeness? or both also can?
2)”Examine any old unpresented cheques to assess if they need to be written back into the purchase ledger to confirm accuracy &
valuation and completeness”
=Why the unpresented cheque need to written back into the purchase ledger?I don’t understand it. Is not already write when THE company makes the payment?
3)”Inspect the bank confirmation letter for details of any security provided by the company or any legal right of set-off as this may
require disclosure to confirm appropriate presentation.”
=is it not related to NCL ,CL and assets?why it is relevant to the cash and balance verification?
4)”Count the petty cash in the cash tin at the year-end and agree with the total to the balance included in the financial statements to confirm
accuracy & valuation, and existence.”
=From count the cash in cash tin to the balance included in the financial statement, is it should be for completeness assertion? and if its agreeing from the financial statement balance to the amount in the cash tin ,then is for existence assertion?
Hope tutor can clarify the question for me,I very appreciate it. Thank you so much.January 24, 2019 at 9:04 am #503161Kim SmithKeymaster
- Topics: 93
- Replies: 6421
Good morning! When asking questions about a specific question/answer can you please give the post the question name and exam session (where relevant). (Also indicate if it’s in a BPP or Kaplan kit – as it may have been adapted from the original).
1) I would say that tracing unpresented cheques from pre year-end recording (in the cash book) to a post year-end statement is a cut-off test on payment transactions. As the amounts of the cheques would also be agreed, it also confirms accuracy of the payment amounts. These assertions (about transactions) also contribute to the assertion of “accuracy, valuation and allocation” about the cash balance. If this procedure showed unusual amounts/significant delays these assertions would not be adequately met and would need to be followed up – obtaining explanation from management would be a starting point – but alone would be insufficient evidence. I think the way in which the answer point is written is possibly confusing you – the assertions relate to the test, not only the explanation. This is certainly not aimed at (physical) existence of cash (at bank) – this will be confirmed by the bank’s confirmation. I personally don’t think that this is a test of completeness unless we’re also tracing from post-year end bank statement to pre-year end recording in cash book.
2) This follows on from 1. What if the cheques recorded as cash book payments do not “clear” the bank within a week or two (or longer)? Can they still, reasonably, be “in the post”? Have they been “lost in the post”? I well remember asking an accountant at an audit client why so many cheques had not cleared – and was shown a drawer full of cheques – they hadn’t even been put in the post(!) This is an unsophisticated (i.e. simple and easily detected) form of ‘window-dressing’ – recording payments that haven’t actually been made will reduce a bank balance/increase an overdraft (most likely secured) and reduce trade payables (unsecured). “written back into the purchase ledger” could be achieved by making a journal entry “Dr Cash/Cr Payables” to reflect the fact that the payments hadn’t actually been made at the year end. (It wouldn’t require adjusting each individual supplier’s account as the cheques will have since been sent to the suppliers – my example above is extreme.)
3) See chapter 16 – the assertions of presentation and disclosure relate to all classes of transactions and balances. If a bank overdraft is secured by one or more assets – disclosure of this is relevant to both the liability and the assets.
4) Inspecting/counting any asset at the reporting date confirms that it exists (physically).
From physical cash to the financial statements (recorded) confirms “accuracy, valuation and allocation” – i.e. the asset has been included at the appropriate amount. It is also, as you say, completeness. And yes, from financial statements to physical is existence.
- You must be logged in to reply to this topic.