R

L
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1. Understand and explain the financial statement assertions that are applicable to bank and cash balances.
2. Understand the risks of misstatement affecting bank and cash balances.
3. Describe the substantive audit procedures necessary to audit the assertions relevant to bank and cash balances.
4. Describe the substantive audit procedures to audit a bank reconciliation.

I
- OVERVIEW
 Bank & Cash balances
Consist of:
Bank accounts with one or more banks o Current account; o Call, deposit, savings; o Clearing.
Petty cash and other cash on hand
 Method of payment from debtors o
Cash/cheque physically o Direct deposit into bank account o Electronic Funds Transfer (EFT)

I
- ASSERTIONS
Bank & Cash balances: assertions applicable
 Existence
 Rights
 Valuation
 Completeness

R

Theft of cash by staff or outside parties i.e. cash received from customer, but never deposited / recorded.
 Lapping/rolling of cash by staff member.
 Cash deposited , but never recorded (assertion affected?)
 Deposit processed by bank, but not yet recorded, should be reconciling item on bank recon. What if not?
 Window dressing : manipulation of current ratios.
 Kiting with transfers : abuse of delay in bank processing time to overstate intercompany/intracompany bank account(s).
AN 10/72

S UBSTANTIVE P ROCEDURES
-E
, R
 3 rd party evidence 
 Auditor confirms directly
 Use standard SAICA letter
 Confirm well in advance
 Auditor compares confirmation results with client’s records.
 Bank will indicate:
all a/c’s in audit client’s name;
- balance of accounts;
- encumbrances, security.
7

S UBSTANTIVE P ROCEDURES
-C
• Primary evidence for completeness: Bank Confirmation
• What if client has account with other bank than one confirming?
Perform other procedures to detect completeness risks :
 Compare current year -> last year
 Alert when performing other procedures e.g. inspecting minutes, budgets, deposits, payments
• Foreign bank accounts: enquire of management; alert if detect import/export transactions.
8

S UBSTANTIVE P ROCEDURES
-V
• Primary source of evidence
• Unlikely that the balance per the bank confirmation will agree to the cashbook.
• Thus, should reperform the client’s bank reconciliation.

S UBSTANTIVE P ROCEDURES
-V
Bank Reconciliation as at 31/12/2012
Favourable balance per bank statement
Add: outstanding deposit (not processed by bank yet)
31/12/2012
Less: outstanding cheques (not processed by bank yet)
28/12/2012
22/12/2012
Favourable balance as per cashbook / bank control account in general ledger
 Which balance will appear on the bank confirmation?
 Which balance will appear in the financial statements?
R
14 300
(9 100)
(1 800)
(7 300)
R
72 500
14 300
77 700
10

S UBSTANTIVE P ROCEDURES
-V
• Balances on bank reconciliation
• Casting and logic
• Cut-off on transactions in cashbook just prior to year end: these should be on bank statement before year end. If not on bank statement?
• Outstanding cheques and deposits on bank reconciliation:
- Are they indeed in the cash book (prior to year end)?
- Are they on the subsequent financial period’s bank statement?

S UBSTANTIVE P ROCEDURES
-V
• Last cheque issued for the year (“cut-off cheque number”):
- No number lower than cut-off number should be on subsequent financial period’s bank statement. If so, also on bank recon as outstanding cheque not yet through bank at year end!
• Long outstanding cheques and deposits (max 2 weeks): reasons
• Unusual reconciling items

S UBSTANTIVE P ROCEDURES
C
C
Procedures: “Cash on hand”
 Observe closely the counting by cashier (never alone with money!)
 Observe/reperform cashing up procedure:
 Cash received
 Cheques received
 Credit card slips
Agrees with day’s total on cash register roll
- Shortages? Surpluses?
 Tills/cashier booths counted separately. Why?
 Deposit slips prepared by cashier, agree.
 Agree bank statement
All documented on auditor work paper

END
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