Question

Does an auditor have to follow up on an unusual cash payment if it is immaterial to the financial statements? Why or why not?

Answer 1

Yes an auditor have to follow up on an unusal cash payment if it is immaterial to the financial statements. because audit is risk based approach and there are many obejctive of audit.

• When conducting an audit engagement, the auditor should bear in mind what the overall objectives of his/her work are, ie to obtain reasonable assurance as to whether the financial statements are free from material misstatement, which may arise from fraud or error, so that he/she can express an opinion on whether the financial statements are prepared in accordance with the adopted financial reporting framework and report accordingly.
• To obtain reasonable assurance, the International Standards on Auditing (UK and Ireland) (ISAs) require the auditor to obtain sufficient appropriate audit evidence to reduce the risk of giving an inappropriate audit opinion when the financial statements are materially misstated, in this way allowing the auditor to draw reasonable conclusions on which to base his/her audit opinion.
• Under the ISAs, an effective audit should be performed by adopting a risk-based approach that seeks to identify and assess specific risks of material misstatement concerning the financial statements of an entity and addresses them with audit procedures designed to result in audit evidence that is sufficient, relevant and reliable.

so auditor should follow above objective and compliance. because unusal cash payment is immaterial it's reasone are following.

• Cash auditing is an important part of the audit because investors want to know the accuracy when looking at the company's financial condition. They look at the current assets which the cash is part of when finding out the condition of the company.
• Almost all business transactions will be ultimately settled through the cash accounts, the audit of cash accounts also assists in the verification of other asset and liability accounts as well as revenue and expenses.Cash is the highly liquid asset in a company and it is an area of high inherent risk since there is a relatively high risk of misappropriation.
• To ensure that the cash is actually in existence and belong to the company at a given date or at the year-end date.