Question

Hi, I am using excel and auditing cash on the company. The instructor say, " Vouch outstanding checks on the reconciliation to checks cleared in the next period." What does this mean? I know I will have to go to bank reconciliation, but I don't know what to do after that. Would you please help me? Thank you.

Answer 1

Auditing cash of the company

Auditing cash and bank account of an entity is a main task of an auditor. The auditor should be vigilant in auditing cash and bank accounts and bank reconciliations because there can be fictitious entries at the end of the year to manipulate or falsify accounts passed by the accountant. They reverse the same entries at the beginning of the next accounting period. For example, there can be huge creditors balance or some other liabilities at the end of the accounting period.This may be due to lagging in the payment system of the company or due to deficiency of cash or bank balance. If the company wants to obtain or enhance or continue the bank loan facility or if they want to attract the investors they may want to show a lower current liability. For this they may pass fictitious entries showing payments to creditors or payment of other liabilities. These entries are reversed at the beginning of the next accounting period.So an auditor should also check the next period also to obtain audit evidence regarding cash and bank transactions. Following steps have to be followed by the auditor:

1. Check the cash and bank ledgers at the end of the current accounting year and at the beginning of the next accounting year to check for any fictitious entries reversal.
2. Check the bank reconciliation to know about the outstanding cheques or payments.
3. Check the bank passbook at the end of the current accounting period and at the beginning of the next accounting period to know whether the payments are correctly reflected in the bank statements.
4. Check the cheque books to know whether the counterfoil correctly mention the payees and there are no outstanding cheque leaves in the cheque book pending for delivery.
5. Obtain details and clarifications from accountant whenever needed.
6. After all these steps if any deficiency is found report to the head of the audit team.