Audit of Cash

Audit of Cash

1. Identify risk

Procedures to test Cash 

Auditing Procedures

A.    Existence:  Does cash exist? 

1.   Count cash at company

• take control of cash and securities (to counter substitution)
• examine checks received to determine the payee is the client
• examine checks for endorsements

1.     Send out bank confirmations (use AICPA Standard Form)

• request is from client, but auditor is actually controlling the communication
• form is confirming:  account name, number, rate of interest, balance of accounts
• form is confirming:  loan information of the client, including collateral

1.  Perform or evaluate bank reconciliations for all accounts.  (Best evidence)
2.  Request cutoff bank statement (one to two weeks after year-end). 

• Used to reconcile deposits in transit and outstanding checks.
• Look for checks written before year end but not listed on bank reconciliation as outstanding.  May suggest "check kiting."
• 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.

1. Prepare schedule of interbank transfers.
2. Prepare "proof of cash" when control risk is very high.

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

            1.    Cash cutoff test.

            2.    Analytical procedures

    C.    Rights and Obligations.  Does the client own the rights to cash?

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

    E.    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.

• evaluate presentation (direct or indirect method)
• Reconcile information with income statement and balance sheet.

            4.    Read financial statement notes.

Audit techniques for verifying cash

1. Scan the journal of entries for reductions to cash that are unusual
2. Request a copy of any cash flow statements prepared for the business
3. Perform a bank deposit analysis as a minimum income probe
4. Sample cash payout slips
5. Review bank reconciliation
6. Be aware of internal control issues regarding cash sales not rung on machines that were discovered during the interview
7. If necessary, interview individual employees. Follow third party contact requirements before doing so

iv)  Internal control for restaurant

Regardless of an entity’s size, geographic location and complexity, the ability to manage operational, financial and compliance risk is a key ingredient to success.  Effective oversight and process controls are essential to managing this risk and mitigating the negative impacts of fraud, unauthorized transactions and other violations of company policies and procedures. Below are some basic internal controls that even the smallest organization should implement to help prevent and identify high-risk behaviors