AccuWiz Learning Series

Cash and Bank

Comprises of

Cash and bank balance in a financial statement would

primarily be represented by:
– Cash in hand
– Balance with banks
– Fixed deposits
– Bank overdrafts
Salient features…

…cash and bank balances may constitute a significant

proportion of the total assets of an entity. importantly these
assets are highly prone to misappropriation,
misapplication and other forms of fraud…
Audit assertions…

– Does the cash exist? (Existence/Occurrence)

– Are there any restrictions on cash balances? (Rights and
Obligations)
– Have all cash transactions been recorded in the proper
period? (Completeness, Cutoff)
– Are cash amounts properly classified and described as to
any commitments or restrictions on withdrawal?
(Presentation and Disclosure)
Ensuring existence…

Audit procedures include obtaining a confirmation from

bank (EO)

Confirm cash accounts with financials institutions with

which business was conducted during the year

We must confirm directly,

the cash account
balances with the financial
Institutions, in our
standard format
Bank confirmations

• Confirmations mailed directly to institutions with which the

entity conducted business during the year
• Agree accuracy of balances used in bank reconciliation
• Obtain details on:
– restrictions on the bank balance
– any security on loans
– details of loans with the bank
– bank accounts opened closed during the year
View check

Q How do you think we would determine whether there are any

restrictions on cash balances?

A – The bank confirmation should stipulate if there are any

restrictions on the cash balances
– In addition, we may want to directly make inquiries of the client
View check

Q Do we need to ensure that all transactions have been recorded in the

correct period?

A Yes, but why?

Audit procedures to ensure the same :

– Inter-bank Transfer Test and

– Bank Reconciliation Procedures
Inter-bank transfer test

• Verify that transfers between the client's banks

– are recorded in the same accounting period
– are not included in the balances of both banks

• Test can detect duplicate recording of cash

Procedure
requires
• Determine significant transfers between bank testing of
accounts, including transfers between branches, transfers
divisions and subsidiaries have been properly between
recorded bank
accounts
Bank reconciliation testing

Verify that:
• The balance per the bank statement reconciles to the balance
per the client's records
• All significant reconciling items are valid and cleared in the subsequent
period (e.g., deposit, outstanding checks, etc.)

Obtain bank reconciliations for all bank accounts Procedure

(a) Agree book balances to the general ledger requires that
(b) Test footings, including the list of outstanding checks we obtain
(c) Agree bank balances to bank confirmations or bank bank
statements reconciliations
(d) Scan reconciling items for reasonableness
for each of the
(e) Investigate significant outstanding checks, deposits in
transit and other reconciling items that did not clear in
significant
the subsequent month. bank accounts
View check

Q What it is an outstanding cheque and what is the time period for

clearance (Stale cheque)?

A A cheque issued but has not presented to the bank for

clearance. Basically funds have not been taken from your
account yet

A cheque becomes stale if the same is not presented to the

bank within a period of three months from the date of its issue –
need to reverse all such cheques
Un-mailed cheques

Keep an eye out for un-mailed cheques

– Ask the client whether there are any unmailed checks as of year
end
– This may require a reclassification entry to A/P

Inquire of accounting personnel as to the mailing of all checks that

were drawn as of the year end and before the books were closed
and, if not mailed, consider reclassification to cash and liability Procedure
accounts.
We need to consider presentation and disclosure while
performing other audit procedures

Document and verify information that will require disclosure in the financial
statements. Consider:

(a) Cash subject to restrictions that prevents its use for current purposes
(b) Cash appropriated for other than current purposes unless such cash offsets a
current liability
Points to remember

• Bank reconciliation
– Deposited but not cleared
– Issued but not presented for payment
– Scan for large and unusual items
– Subsequent clearance
• Obtain cash certificate
• Physically verify the cash – surprise check
• Send bank confirmation letters directly to the bank
Cash & Bank

Balance Sheet disclosure

Indian GAAP

Ind AS
Cash & Bank

Schedule
Cash & Bank

Schedule
Cash & Bank

Schedule
Cash and Bank

Questions…