Substantive Test of Cash

Management Assertions

These are claims regarding the condition of the business organization in terms
of its operations, financial results, and compliance with laws and regulations.
Management Assertions

Auditor’s Objective: to determine whether these assertions are valid.

FINANCIAL
IFRS/PFRS
STATEMENTS

SUFFICIENT &
APPROPRIATE
PROCEDURES EVIDENCES

AUDIT
OPINION
 Assertions about PRESENTATION &
CLASSES OF
ACCOUNT BALANCES at DISCLOSURE
TRANSACTIONS AND the period end
EVENTS for the period
under audit
Existence Occurrence & Rights and
Occurrence
Obligations

Completeness Rights and Obligations Completeness

Accuracy Completeness Accuracy & Valuation

Cutoff Classification &

Valuation and Allocation
Understandability

Classification
Audit
Assertion Category
Objectives Account Balances Audit Objectives
1. Existence All cash on the statement of financial position at a given date is held
by the entity or by others for the entity

2. Completeness All cash owned by the entity at the reporting date is included on the
statement of financial position

3. Valuation and Cash, including bank balances, is stated realizable value and agrees
Allocation with supporting schedules

4. Rights and Obligations The entity, owns or has legal rights to, and has unrestricted use on all
the cash on the statement of financial position at the reporting date

5. Presentation and Cash, including bank balances, is properly classified, described, and
Disclosure disclosed in the statements including notes, in accordance with PFRS.
Audit Procedures for Cash

1.Sending Confirmation to banks or financial institutions;

2.Conducting surprise cash counts;
3.Obtaining and testing bank reconciliation and if appropriate, preparing proof
of cash;
4.Obtaining bank cutoff statement and tracing bank transfers:
5.Performing cash cutoff tests;
6.Checking the appropriate valuation of cash; and
7.Performing analytical procedures to assess the reasonableness of reported
cash
 1. Bank
Confirmations
Primary Audit Objectives:
• Existence
• Valuation
• Rights and Obligations
• Presentation and Disclosure
 BANK CONFIRMATION BANK CERTIFICATE

xxx
2. Cash Count
Primary Audit Objectives:
• Existence
• Valuation
• Rights
xxxxxxx
 Primary Audit
Objectives:

3. 1Test on o Existence
o Valuation
Bank o Completeness

Reconciliation o Rights
1.Verify the cash balance used in the bank reconciliation
2.Check the accuracy of the footing in the bank reconciliation
3.Obtain supporting documents for any book and bank
reconciliation items
4.Examine whether there is an adjusting entry to reflect the book
reconciling items.
3.2 Proof of Cash
1. Cash receipts and disbursements recorded in the accounting records but not on
the bank statement
2. Cash deposits and disbursements recorded on the bank statement, but not on the
accounting records
3. Cash receipts and disbursement recorded at different amounts by bank than in
accounting records.
4. Tracing Bank
Transfers

1. Obtain a bank cutoff statement directly from the bank

2. Prepare a schedule of bank transfers showing all transfers between the
client’s bank accounts during the last week of the audit period and the
first week of the subsequent period.
3. Trace all checks, deposits, and other cash changes from the cutoff
statement to cash receipts and disbursements records, paying
particular attention to dates and amounts.
BANK CUT-OFF STATEMENT BANK TRANSFER SCHEDULE
BANK CHECK STATEMENT DEPOSITS & ADDITIONS SUMMARY
 5. Cash Cut-off Tests

1. Comparing deposits on the bank statements immediately before

and after reporting date with entries in the cash receipts journal
to establish the reasonableness of the deposits in transit at the
reporting date
2. Comparing the dates of the disbursement and receipt of
intercompany payments or interbank transfers immediately
before and after the reporting date to establish that both receipts
and disbursements were recorded in the proper periods.
6. Cash Valuation

1.Obtain the period-end foreign exchange rate from an

independent source
2.Re-perform the conversion of the cash balance into the
currency using this rate
3.Compare the resultant amount to the account balance in
the general ledger and accounting for any differences
* Cash Deposits in closed bank
7. Analytical Procedures on Cash

1. Compare the listing of cash accounts with those of prior periods and
investigate unexpected changes or the absence of expected changes

2. Review interest received and or paid in relation to the average cash

balances and or overdrafts

3. Investigate any unusual fluctuations and significant differences

Additional Audit Consideration:
Bank Overdrafts
1. Special Audit Consideration

1. Kiting- occurs when check is drawn against s first bank

and depositing the same check in a second bank to cover
the shortage in the latter bank.
1. Special Audit Consideration

2. Lapping- is done by misappropriating collections from

one customer and concealing this defalcation by applying a
subsequent collection made from another customer.
1. Special Audit Consideration

3. Window Dressing- is any deliberate misstatement of the

assets, liabilities, equity, income and expenses.
Summary of audit procedures classified per assertion

Assertion Category Primary Audit Procedures

1. Existence Sending confirmations to banks or financial institutions

Surprise Cash Count
Obtaining and testing bank reconciliation and preparing proof
of cash (if appropriate)
Obtaining bank cutoff statement and tracing bank transfers
Cash cut-off test

2. Completeness Obtaining and testing bank reconciliation and preparing proof

of cash (if appropriate)
Obtaining bank cutoff statement and tracing bank transfers
Cash cut-off test
Summary of audit procedures classified per assertion

Assertion Category Primary Audit Procedures

3. Valuation and Sending confirmations to banks or financial institutions

Allocation Surprise Cash Count
Obtaining and testing bank reconciliation and preparing proof
of cash (if appropriate
Checking the appropriate valuation of cash

4. Rights and Sending confirmations to banks or financial institutions

Obligations Surprise Cash Count
Obtaining and testing bank reconciliation and preparing proof
of cash (if appropriate)
Cash cut-off test
Summary of audit procedures classified per assertion

Assertion Category Primary Audit Procedures

5. Presentation and Sending confirmations to banks or financial institutions

Disclosure Checking the appropriate valuation of cash