Question

Describe major activities and documents that an auditor would encounter to audit cash disbursements.

Answer 1

The auditor would come across the following documents when auditing cash disbursements:

1) Bank Statement.

2) Counterfoils of receipts.

3) Purchase invoices(cash purchases).

4) Loan agreements(payment of mortgage)

5) Payment Vouchers.

Cash is a very liquid asset. Hence, the sensitivity to frauds and error is very high in those transactions.

The auditor would have to consider the following points while auditing cash disbursements:

1) He should check whether the payment transactions actually took place- Occurrence of the transaction-

i. Did the organisation record the payment transaction in it's books.

ii. Did the organisation record the payment transactions but did not actually make the payment.

2) Check the purchase book, to check whether payments made for cash purchases, whether, these purchase are legitimate transactions.

3) Check whether proper internal controls are set up to for handling these cash transactions.

4) Check whether the payments are authorized by the management and the staff. Cash disbursements should be authorized by appropriate level of management.

5) Check payment vouchers with the books and verify whether the transactions are real.

6) Check whether the transactions are free from error- posting errors, payment errors, etc.- Accuracy of the transaction.

7) Check for cut off transactions for reasonable assurance. Organisations may try to move their transactions from one period to the next to manipulate the results.