CASH

(Audit Procedures)
Existence: Does cash exist?
1.

Count cash at company

a. Take control of cash and securities (to counter substitution)
b. Examine checks received to determine the payee is the client
c. Examine checks for endorsements

2.

Send out bank confirmations (use AICPA Standard Form)

a. Request is from client, but auditor is actually controlling the communication
b. Form is confirming: account name, number, rate of interest, balance of accounts
c. Form is confirming: loan information of the client, including collateral

3.

Perform or evaluate bank reconciliations for all accounts. (best evidence)

4.

Request cutoff bank statement (one to two weeks after year-end).

a.

Used to reconcile deposits in transit and outstanding checks.

b. Look for checks written before year end but not listed on bank reconciliation as
outstanding. May suggest "check kiting."
c.

Look for the number of checks returned in cut-off statement. Fewer than expected might
mean the client is holding written checks to improve current ratio.

5.

Prepare schedule of interbank transfers.

6.

Prepare "proof of cash" when control risk is very high.

Completeness. Does the balance at the end of the period reflect all cash transactions?
1.

Cash cutoff test.

2. Analytical procedures
Rights and Obligations. Does the client own the rights to cash?

Valuation/allocation. Is cash valued in accord with GAAP? Foreign currency might be an

issue.
Presentation/Disclosure. Is cash properly classified, described and are disclosures
appropriate?
1.

Inquire of management. See management representation letter.

2.

Evaluate restrictions on cash.

3. Assess cash flow statement.

a.

Evaluate presentation (direct or indirect method)

b. Reconcile information with income statement and balance sheet.

4.

Read financial statement notes.