In: Accounting
Give examples of substantive procedures used to test cash and relate them to the relevant assertions
Substantiveprocedures are audit procedures to test whether the evidence collected by the auditor are free from material mistatments with regard to completeness, accuracy and validity of financial transactions.
Substantive procedures used to test cash with relation to the relavent assertions are as follows:-
1) Presentation and disclosure
2) Valuation and allocation
3) Completeness
4) Occurance
5) Rights and obligations
A brief explanation of the above assertion with respect to test cash are as under stated:-
1) Presentation and disclosure :- Financial statements shall be reviewed with a view to confirm whether all the transactions relating to cash are classified as per the basis of classification. And they are presented in financial statement as per accounting principles, standards and GAAP rules. And check wherher required disclosures are also made in the notes of financial statements regarding cash.
2) Valuation and allocation:- Cash in hand shall be counted and confirmed with the balances recorded in the cash book. Cash in bank shall be confirmed with letter of confirmation received from bank with authorized signatory. And the source of cash shall be confirmed by cross verifying the cash book and sources of cash inflow i.e cash received from debtors or loans or issue of shares or sale of any capital asset etc..
3) Completeness :- Cross check cash receipts with amount recorded in cash books, bank transactions to check deposits and withdrawl of cash, creditors and debtors accounts, whether all cash amounts were completely recorded. Third party confirmation is best evidence to confirm the completeness of these cash transactions.
For example:- banker's confirmation letter, creditors certificate of amount owing to him etc...
4) Occurance :- Checking whether the cash transactions were actually occurred or not by using external confirmation. Receiving third party confirmation is one of the way to check or confirm the Occurance of cash transactions.
5) Rights and obligations:- It is very important to check whether the person who performed the transactions is authorised to do so and he has right to pay the cash for the transaction. It can be confirmed by going through the company's rules regarding rights and powers to issue cash and the limit of cash authorized to him. And also in certain times check whether he is really obilized to pay cash in some cash or bank payments. For this also it will be known by going through the Company's rules regarding Obligation of respected designsted persons in the company.