Audit of Cash

Key Concepts in Audit of Cash

Simplicity of Cash Audit

• Reason: Cash is often managed by banks, limiting physical cash handling.
• Bank Statements: Periodically sent by banks, detailing account activities.
• Bank Certificates: Sent directly to auditors, providing:
  • Account balances
  • Accrued interest
  • Overdraft details
  • Securities (e.g., mortgages on company assets)

Importance of Bank Reconciliation

• Purpose: Ensure alignment between client and bank cash balances.
• Common Issues: Timing differences between transactions recorded by bank and client.
• Process:
  • Start with the cash book balance.
  • Adjust for interest debits and unknown charges.
  • Update bank statement by considering:
    • Unpresented checks
    • Deposits not yet appearing
• Goal: Achieve precise reconciliation to the last cent, ensuring all discrepancies are explained.

Handling Physical Cash

• High-Risk Nature: Cash is prone to theft or error.
• Test Counts: Necessary for businesses with substantial cash, e.g., shops retaining startup cash for trading.
• Materiality: Cash is often not material but is high-risk.

Role in Audit Team

• Assigned To: Typically handled by junior audit team members due to its non-judgmental arithmetic nature.

Conclusion

• Cash Audit Complexity: Generally straightforward due to bank management and reconciliation processes.
• Focus: Ensure thorough bank reconciliation and awareness of physical cash risks.