Question

You are auditing cash for Moka, Inc. In meeting with the CFO during the planning stages of the audit, she indicated that there was a high risk of misstatement due to fraud in the cash account, given the lack of proper segregation of duties. As the auditor, what tests could you perform to detect fraudulent activities in the cash account?

Answer 1

We need to check few points while doing Audit Of Cash. Cash is the area where maximum possibility of being misappropriation and fraud. Sometimes it is not easy to find any misappropriation existed. Audit of cash should be in a way to make the auditor assure that there are not any misappropriation in the system. The following points we have to do carefully while doing cash audit

1. Confirm cash balances:

2. Vouch reconciling items to the subsequent month's bank statement.

3. Ask if all bank accounts are included on the general ledger.

4. Inspect final deposits and disbursements for proper cutoff.

The primary audit procedure used in testing cash balances is confirmation. In order to test confirmation, auditors ask the company's bankers to verify the balance of the bank accounts directly; responses are sent solely to the auditors. Bankers require electronic confirmation requests. Examine whether the cash balance shown in the financial statements reconciles with the results of the physical verification after taking into account the cash receipts and cash payments between the date of the physical verification and the date of the balance sheet.

Agree the confirmed bank balance to the period-end bank reconciliation. Then, agree the reconciling items on the bank reconciliation to the bank statement subsequent to the period-end. For example, examine the January 20X8 bank statement activity when clearing the December 20X7 reconciling items. Finally, agree the reconciled balance to the general ledger cash balance for the period-end

Cut-off bank statements (e.g., January 20, 20X8 bank statement) may be used to test the outstanding items. Such statements, similar to bank confirmations, are mailed directly to the auditor. Alternatively, the auditor might examine the reconciling items by viewing online bank statements. (Read-only rights can be given to the auditor.)

Cash Audit work papers should include:

• An understanding of cash-related internal controls
• Risk assessment of cash assertions at the assertion level
• Documentation of any control deficiencies
• Cash audit program
• Bank reconciliations for each significant account
• Bank confirmations