Substantive Test of Cash

Management Assertions

These are representations made by an auditee about economic

actions and events.
Auditor’s Objective: to determine whether these assertions
are valid.
1. Existence / Occurrence

Objective: To determine whether cash exists at year-end and cash related

transactions occur within the year.

Procedures:
• Bank Confirmation
• Surprise Cash Count
• Bank Reconciliation
• Tracing Bank Transfers
 • Account Name
• Account Number
• Type of Account
• Interest Rates of Deposit
• Deposit balances
• Loan Balances
• Due Date
• Interest Rates of Loan
• Date of payment of interest
• Collateral

Auditee Bank Auditor

Cash Count Petty Cash Custodian

Role of Auditor : Observe

Bank Reconciliation
Test of Bank Reconciliation

1) Verify the cash balance used in the bank reconciliation

• Trace balance per book in the ledger
• Trace balance per bank in the balance per bank statement

2) Check the accuracy of the footing in the bank reconciliation

3) Obtain supporting documents for any book and bank reconciling

items
Tracing Bank Transfers

o To detect kiting

- a way of concealing cash shortage by taking

advantage of the clearing period.

Tracing Bank Transfers

1. Obtain a bank cut-off statement directly from the bank.

2. Prepare a schedule of bank transfers showing all transfer between the client’s bank

account during the last week of the audit period and first week of subsequent

period.

3. Trace all checks, deposits and other cash changes from the cut-off statement to cash

receipt journal and cash disbursement journal, paying attention to the dates and

amounts.
2. Completeness

Objective: To determine whether all cash transactions are recorded in the

proper accounting period.

Procedures:

• Perform Cut-off Testing

• Proof of Cash
Perform Cut-off Testing

o To detect window dressing

- desire to have a good current ratio
Perform Cut-off Testing

1. Comparing deposits on the bank statements immediately

before and after reporting date with entries in the cash receipt
journal

2. Comparing the dates of disbursement and receipt of the

interbank transfers to establish that both receipts and
disbursements were recorded in the proper periods.
Proof of Cash
3. Valuation and Allocation

Objective: To determine if cash is recorded and presented at the proper

amount.

Procedures:

• Checking the appropriate valuation of cash

Cash Valuation

1. Obtain the period- end foreign exchange rate

2. Re-perform conversion using the current rate

3. Compare the result of the amount to the account balance in the general

ledger and accounting for differences.

* Cash Deposits in
closed bank
4. Rights and Obligations

Objective: To determine if 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

Procedures:
• Bank Confirmation
• Read minutes of meetings for any restrictions made on cash
5. Presentation and Disclosure

Objective: To determine whether cash, is presented in accordance with the generally

accepted accounting principles.

Procedures:

• Evaluate proper financial statement presentation and disclosure of

cash;
• Investigate any checks representing large or unusual payments to
related parties (PAS 24 Related Party Transaction)
-END
Thank you for Listening!!!
References

o Applied Auditing by Maria Elenita Cabrera

o Applied Auditing by Asuncion, Ngina & Escala