AUDITING 288 388

BANK & CASH CYCLE

Auditing Fundamentals - Chapters 6 & 7 - ISA 315 & 330
 Learning outcomes

• Describe the nature of the bank and cash

cycle including the applicable accounts
and transaction types and functions.
• Describe the control objectives applicable
in the cycle.
• Explain what could go wrong (risks or
weaknesses) in the cycle including the
consequences thereof.
• Make recommendations to improve
weaknesses.
• Design a suitable internal control system.

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Framework
Acquisitions &
Payments
Revenue & Receipts
Wages & Salaries
Transaction types and functions Inventory& Production
Bank & Cash

Controls (Recommendations)

Weakness(es) and
consequences

Control Objectives

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Cycles
SELF STUDY
Investment TERM 2
and financing
Acquisitions &
Payment

Cash &
Inventory &
Bank
Production

Salary &
Revenue &
Wages
Receipts

How business works?

Link with other cycles

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Risks - Bank & Cash

• Receipts (cash, credit cards/debit cards, EFT) –

refer to revenue and receipts slides

• Payments (direct bank transfer or EFT) –

refer to purchases and payments AND
salaries and wages slides

What Could Go Wrong (WCGW)

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Breakdown
of focus
areas

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 Cash - receipts

Debit/credit
Cash register EFT Direct deposit Trigger
card

Already in Already in
Receipt Receipt
bank – no doc bank – no doc
Doc(s)

Deposit slip Deposit slip

Daily cash up Daily cash up

Bank recon Bank recon
recon recon

Monitoring
Cash count Bank recon

Bank recon

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 Cash -
payments

EFT Direct deposit Petty cash Trigger

Payment Already in
Petty cash slip
schedule/invoice bank – no doc
Doc(s)
EFT Payment
requisition

Daily cash up Petty cash

Bank recon
recon recon

Monitoring
Petty cash
Bank recon
count

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Cash
receipts:
Cash register

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Cash - receipts

Controls at start of shift and controls at end of shift – refer

Cash register Trigger
slide 13 and 14

Receipt
Refer to sales and receipts slides for controls (slide 18 + 19) Doc(s)

Deposit slip

Daily cash up
Refer to slide 15
recon

Monitoring
Cash count Refer to slide 23

Bank recon Refer to slide 21 +22

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Cash register – start of shift
SEGREGATION OF DUTIES RECORD PROCEDURES:
• Cashier takes custody of cash float – chief cashier issues • Cashier counts cash in
the cash float
float and signs a float
ACCESS CONTROLS: register acknowledging
custody of cash.
• Cash float is handed over in sealed bag
• Chief cashier signs
• Cashier puts cash float in cash register drawer – cash register as proof of
register is locked and only accessible by chief cashier issuing cash float.
• Cashier can only gain access once transaction is • A notice on premises,
captured reminding clients to
• Cash register must be mounted to table to prevent it request a receipt
being taken off premises – cash register also at exit of
premises
• Security cameras and guards on premises
• Each cashier is allocated a dedicated cash register

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Cash register – end of shift
SEGREGATION OF DUTIES ACCESS CONTROLS:
• Both cashier and chief cashier counts the cash in the • Cash is kept in sealable
register bag until deposit.
MONITORING RECORD PROCEDURES
• Cashier prepares a daily cash up reconciliation – total • Cash is kept in sealable
cash counted is reconciled to total receipts and float bag until deposit.
provided. • Reconciliation is signed
by cashier and chief
• Any differences are follow up immediately cashier
• Refer to slide 18 for example of daily cash up recon. • Signature of chief cashier
is proof of taking custody
of sealed money bag.
• NB perform surprise cash counts.
AUTHORISATION:
• Chief cashier reviews
and approves
reconcilliation

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Daily cash up reconciliation

DAILY CASH UP RECONCILIATION AS AT 31 MARCH 2022

• Balance according to float received XXX

• Plus: total receipts per till and credit/debit card

slips + XX

• Less: total of credit/debit card slips (non-cash) - XX

• Balance per physical cash in sealed bag XXX

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Cash
receipts:
Debit/credit
card

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Cash - receipts

Debit/credit
Refer below Trigger
card

Receipt Refer to slide 18

Doc(s)

Deposit slip Same as covered under revenue and receipts cycle (slide 19)

Daily cash up
Refer to slide 15

Monitoring
recon

Bank recon Refer to slide 21 and 22

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Receive money Transaction type

CASH RECEIPTS

DEBIT/CREDIT Trigger?

CARD
PAYMENT BY Copies and to who?

CUSTOMER
1. Customer
Document
Cashier Date

#
Check the following CREDIT/DEBIT CARD SLIP
1. Expiry date on card not 2. Cashier, CRR
reached (Name of cardholder, date & amount)
2. Signature on back of
card to signature on slip
3. Ask for customer ID and
check name on card to XXX 3. Accounting
ID

If transaction does not go

through, cashier should make
a copy of the front and back
of card to re-submit for
payment
Access control – store cash in safe + security cameras
monitoring cash receiving process
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Deposit receipts
CASH RECEIPTS

Segregation of duties
EXECUTE/RECORD

Recording
INDEP
SOD REVIEW
RECORD
1. Bank
Also refer to the Bank Datum/
Date
and cash slides DEPOSIT SLIP
2. Accounting
date of deposit,
amount cash , total amount
XXX

Segregation of duties deposit cash preferably on daily basis C

Cash receipts journal posted to GL & Deb Ledger A

PROCESS

Segregation of duties

Monthly reconciliations Recon

Segregation of duties • bank reconciliation
• debtors reconciliation (debtors control vs debtors ledger balance)
V A C
Cash
receipts:
Bank recon
Cash count

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 19
CH 6, p.206, 241-242

6 Bank reconciliation

➢ What is it? (monitoring of differences between balances in)

 company records
 cashbook & GL
 balance according to bank
➢ Controls?
➢ Independent person
 compiles monthly recon
➢ Independent review
• Test logic of reconciliation
• Test reconciling items
• Investigate long outstanding or unusual items
 Remember controls
Bank reconciliation around this from sales
and purchases cycle

BANK RECONCILIATION AS AT 31 MARCH 2022

• Balance according to cash book XXX

• Plus: outstanding (payments) + XX

• Less: outstanding deposits - XX

• Plus/Min: other reconciling items +/- XX

• Balance according to bank statement

XXX

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5 Cash count – Cash Difference

Cash on hand Cash according to records

(Theoretically → How much should there
(Physical cash)
be?)

1: Petty Cash 1: Petty Cash

=Notes and coins =According to policy
- Payments

2: Cash register 2: Cash Register

=Notes and coins =According to policy

3: Cash in safe, etc 3: Outstanding Deposits

(in cashbook not in bank statement)

Difference = Cash loss / surplus

Cash
payments

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 Cash -
payments

EFT Direct deposit Petty cash Trigger

Payment Already in
Petty cash slip
schedule/invoice bank – no doc
Doc(s)
EFT Payment
requisition

Daily cash up Petty cash

Bank recon

Monitoring
recon recon

Petty cash
Bank recon
count

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Cash
payments:
EFT

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Cash - payments

Supplier statement reconciliation prepared – refer to

EFT Trigger
purchases and payments slides

Payment
schedule/invoice
Refer next slide Doc(s)
EFT Payment
requisition

Daily cash up

Monitoring
recon
Already covered – refer previous slides
Bank recon

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 Prepare Payment PAYMENTS (Creditors and expenses) Which has already
been matched to
monthly statement/ invoice with payment advice GRN or other
EFT or other supporting documentation evidence of a
liability to pay

Recording Payment clerk A

PAYMENT SCHEDULE
Independent Review
Accounting Payment clerk B
EFT
division

Independent Review
Loading of EFT Payment clerk B
Payment clerk A on internet banking,

Senior management
• Segregation of duties
→ Approval of EFT payments
(enterprise’s authorisation policy- 1 or 2 people)
• Review supporting documentation
• Cancel supporting documentation

Segregation • Cash payments journal

of duties • Post to general ledger and creditors ledger

RECORDING Monthly bank reconciliation 26

Cash
payments:
Petty cash

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Petty Cash Controls

PRIOR TO INITIATION

➢ Define access controls and rights

o One person responsible for:
o keeping petty cash stored in a safe – only this person has key
and
o Issuing money from petty cash
o Money issued from petty cash to be kept separate from
other cash.

➢ Set company policy:

 Initial amount to be kept in petty cash – i.e petty cash
advance. Petty cash toped up on regular basis to this
amount.
 Maximum amount that can be issued for one transaction
 The type of transactions that petty cash can be used for
 Petty Cash Controls
Trigger?
Expense paid, and
Request petty cash refund claimed from
petty cash based on
Transaction type
invoice

Document

Attach supporting Requester Copies and to who?

invoice
PETTY CASH SLIP
• Nature of expense Filed away
Cancel supporting In sequence
invoice after paid • Date of request
• Amount requested
Line manager

Independent person Number sequence and matching to invoice

IR by someone
Petty cash supervisor Petty cash reconciliation – refer next slide independent of
petty cash
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Petty cash reconciliation

PETTY CASH RECONCILIATION AS AT 31 MARCH 2022

• Balance per advance XXX

• Plus: top up payments + XX

• Less: total of petty cash slips - XX

• Balance per petty cash tin XXX

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Fraud
considerations

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 CH 6, p.211-213

Other important considerations: FRAUD

Cause
• Occurs due to time span between transaction date & date recorded

• Purpose: to hide fraud or theft or to overstate bank

• Examples:
• Rolling of cash/Lapping

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Other important considerations: FRAUD -
Misappropriation risk

• Rolling of cash / Lapping

• Cashier takes cash paid by a debtor, covers the shortfall with a
subsequent debtor’s receipt.
• Higher risk in companies where:
• Cash is received from debtors;
• Poor SOD between cashier and recording of receipts functions;
• Lack of review over the abovementioned functions

Video link:

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 Other important considerations: FRAUD
Misappropriation risk
• Theft of cash
• Fictitious deposits
• Where clients can pay via direct deposit / EFT → Receive
fictitious proof of payment from the client and consequently
deliver the goods / service to them

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