The audit of cash is usually one of the simplest parts of an audit, particularly if the cash is in the bank rather than a lot of cash sitting around in shops and tills and so on.
It's easy because the bank looks after it and the bank sends bank statements periodically. And also the auditor will write to the bank asking for the bank to send directly to the auditor what's called a bank certificate. And the bank certificate will say how much is in each of the accounts of the client. It will say how much interest has accrued if there's an overdraft. It will also give details of any security that the bank has over company assets, for example, a mortgage, securing a loan.
That would be noted in the bank certificate and that would have to be disclosed in the notes to the financial statements so in many ways a lot of the information is just kind of handed to you on this bank certificate however of course the balance on the bank statement or the balance of the bank certificate is not the amount which is necessarily going to be put into the financial statements into the current assets, and the reason of course is that there's often some sort of delays or differences we hope just due to timing problems between the client's view of their cash balance and the bank's view of their cash balance and what we have to do is to do a bank reconciliation so the bank reconciliation if you remember takes the balance in a cash book and updates it maybe for interest that has been debited out of the account or charges which have been put through which the client didn't know about yet and it takes the bank statement and brings it up to date taking out items like unpresented checks adding in items which have maybe been paid in but not yet showing up on the bank statement. it should be possible to get the bank statement out to the last cent people are very reluctant to accept any discrepancy on cash after all it should be simple, it's just pluses and minuses all during the year and there should be no reason for any discrepancy that can't be explained adequately in the bank reconciliation. sometimes in some businesses they will have a substantial amount of cash if you have a chain of shops it is maybe normal to keep a balance of a hundred or two hundred dollars at the shop so that they're ready to to trade if like on Monday morning in that case it might be necessary to do test counts on this amount of cash the cash is unlikely to be material in most businesses but nevertheless you'll probably do a cash count because we know that cash is of a high risk nature we like to almost almost keep the staff on their toes that cash will be checked up on, but by and large no big difficulty with cash cash is often the part of the audit which is first given to the most junior person on the audit team because it is so non-judgmental it is really just a matter of arithmetic